Cryptocurrency prices are back on the rise — but if you want your assets to really increase in value, it’s time to try yield farming. Colleen Sullivan of crypto trading firm CMT Digital Holdings states that yield farming is similar to obtaining airline miles because you can obtain bonus tokens from crypto trading. Cryptocurrency experts believe that yield farming will help the industry to expand, especially because of its potential to increase your ROI. So, here’s a look at the basics of yield farming, and how you can assess the possible returns from your assets.
What is Yield Farming?
Yield farming is an investment strategy where you lend cryptocurrency assets on decentralized finance (DeFi) platforms to earn revenue from the service. Acryptoverse’s Raj Kapoor states that this is most beneficial when a coin appreciates rapidly, since investors can earn as much as 2,000% due to the performance of the asset. This is in contrast to traditional banks, where individuals lend money to get about 3.5-7% in interest per year.
For example, Mogul’s productions democratizes film financing by establishing a yield farming process where investors can enjoy a 60% return on their assets. Investors can even vote on their favorite film selections for special access or watch live streams, which is why the company’s garnered the attention of Variety, Nasdaq, and Forbes.
The Process of Yield Farming
To generate more revenue from your cryptocurrency assets, you’ll need to conduct a yield farming process on DeFi platforms. DeFi yield farming doesn’t require the participation of intermediaries like conventional banks, so FXCM’s guide to yield farming recommends that investors start by staking their cryptocurrencies in a liquidity pool. You can pledge your assets to a liquidity pool by staking them in the platform and subjecting them to a lock-up period.
In the lock-up period, the staked assets are borrowed by other traders who want to invest and earn from cryptocurrencies. Once this lock-up period is over, you can earn revenue from yield farming through the interest rates that have been set or through bonus tokens that have been discussed in the smart contract. You can calculate the amount of these returns by assessing the average percentage yield (APY) that is expressed on your chosen DeFi platform.
How Can You Calculate Yield Farming Returns?
There are many DeFi cryptocurrency lending platforms out there. So, you’ll need to calculate your potential returns to get the most out of the yield farming process.
To start, you can use this APY Calculator to estimate which DeFi platform is the most profitable for your yield farming strategy. You simply need to input the APY rate, interest rate, compound frequency, term, and initial balance indicated in the platform to assess the value of your estimated return. However, the value of cryptocurrency tokens can be volatile, so it’s also crucial to consider the tokens that each DeFi platform can offer.
Yield farming allows you to earn even greater returns for your cryptocurrency investments, making it a good choice for traders who are willing to lend their assets. Before conducting yield farming on a DeFi platform, learn the process and the ROI calculation so that you can maximize returns on your assets.
