Yield farming is another sort of decentralized finance to maximize returns and functions by allowing participants to move their crypto assets across different DeFi staking platforms.
In yield farming, coins or tokens are not used to verify transactions but to provide liquidity to cryptocurrency exchanges.
Yield farmers use these platforms to lend, borrow or stake coins to earn interest and a percentage of the revenue generated by the platform. Some also speculate on price volatility. Like regular staking, DeFi yield farming is enabled by smart contracts.
Unlike the traditional markets, the benefit of using DeFi yield farming is the flexibility it produces, with 24/7 open markets, effortless automation driven by smart contracts, as well as unnecessary intermediaries that allow participants to access plenty of opportunities to define personalized investment strategies.
DeFi staking aggregators are platforms that aggregate several other liquidity pools and protocols — such as Ethereum and BNB Chain — in a single location to maximize users' profits by saving them time and increasing efficiency for cryptocurrency trades.
While yield farming is unquestionably risky, it can also be profitable — otherwise, no one would bother attempting it. Your overall profit will also depend on how much cryptocurrency you're able to stake. It's easy to find pools running with double-digit yearly annual percentage yield (APY), and some with thousand-percentage point APYs.
But many of these also have a high risk of impermanent loss, which should make investors question if the potential reward is worth the risk. 'The profitability of yield farming, just like investments in crypto more generally, is still very uncertain and speculative', Smith says. He believes the potential return pales in comparison to the risk involved in locking up your coins while yield farming.