Tokens allow yield farmers to lend their tokens for interest or fees.
But as with conventional bank loans, there are various risks for both the investor and the borrower.
Yield farming is a new concept in DeFi, so it’s important to understand whether becoming a liquidity provider or borrowing from a farming liquidity pool will be a worthwhile investment for you.
Which Tokens Can Yield Farming With?
Some of the most common stablecoins invested and borrowed from farming liquidity pools include:
- USD Tether
- Binance USD
- USD Coin
How to Make Yield Farming?
To understand Yield farming, we must start with dApps.
Investors stake their assets into liquidity pools within a dApp. In turn, the dApp platform lends these assets to borrowers.
Investors earn rewards for providing liquidity to the pool. It can be profitable to receive cryptocurrencies as payment for farming, especially if they cannot buy a new coin on the open market.
It is important to note that each dApp platform hosting a liquidity pool will have its own rules regarding the application and distribution of rewards.
- MakerDAO: A DeFi lending platform that allows investors to lock crypto in a Maker Vault.
- Compound: It is an algorithmic DeFi market that allows investors with an Ethereum wallet to deposit funds into the liquidity pool and receive quick rewards.
- Aave: A DeFi protocol that provides investors with aTokens in exchange for crypto.