Crypto is often referred to as a form of gambling, something that people can make money with. However, it’s actually not so easy and there are many ways in which crypto holders can turn their digital assets into real cash. One way is through yield farming; this practice involves buying up cheap coins at low rates then sitting on them for months or years just to see the prices rise before selling out at higher price when they’re ready to take profit from your investment.,

The “best yield farming crypto” is a way to make money with cryptocurrencies. It involves using the correct software and hardware to mine cryptocurrency.

How to make money with crypto by yield farming

How to make money with crypto by yield farming

The DeFi world is quickly developing, and as the global financial system continues to transition towards digitization, DeFi has a huge growth potential, drawing over 3 million investors globally. As a result, it is essential to have a thorough understanding of the assets, markets, investment strategies, and so on.

How to make money with crypto by yield farmingTVL by protocols Footprint Analytics

In the last post, we discussed the fundamentals of DeFi. In this one, we’ll look at:

  1. There are three major DeFi investing categories.
  2. How can investors get passive income from DeFi investments?
  3. DeFi projects’ current hazards 
  4. There are seven ways to assess a DeFi project. 

There are two methods to invest in cryptocurrency.

In the world of cryptocurrencies, there are two sorts of investment: fiat and token-based.

Investments made using fiat currency

  • If cryptocurrency (also known as tokens) is considered a stock, CEX or DEX is a stock exchange. 
  • Alex, an investor, might speculate by buying and selling cryptocurrencies on CEX or DEX, selling high and purchasing low to profit from the difference. 
  • Alex is just interested in the price fluctuations of cryptocurrencies in this situation, and he uses ROI (Return on Investment) as an assessment indicator.

How to make money with crypto by yield farming[email protected] is the source.

Based on tokens (or Yield Farming)

  • When investors are positive about cryptocurrencies in the long run, the simplest investing plan is to “Hold” them; however, a wiser approach is to make better use of them by generating more passive income. 
  • For example, for interest income, investor Alex can deposit cryptocurrencies into the lending platform Compound or the yield aggregator Idle. 
  • In this instance, all that matters to investor Alex is the increase in the amount of cryptocurrencies and the Yield Farming APY.

How to make money with crypto by yield farming[email protected] is the source.

We’ll continue our Yield Farming talk by presenting the three major DeFi investment categories: AMM DEX, Lending, and Yield Aggregator.

As an example, DEX: Uniswap

Uniswap is a decentralized exchange that supports all coins on the Ethereum network. It employs an AMM (Automated Market Maker) algorithm to enable users to swap multiple ERC-20 tokens more efficiently than standard orderbook exchanges.

A liquidity provider (abbreviated as LP) is necessary in Uniswap’s AMM model to generate a pool of liquidity for traders to swap the requisite tokens.

There are two situations in this game.

They swap for dealers.

Assume that 1 ETH is worth 2220 DAI, and trader Alex wishes to exchange his DAI for ETH. To obtain 1 ETH, he must pay 2220 DAI plus a trading cost (all scenarios in this article omit the gas fee for clarity).

How to make money with crypto by yield farming[email protected] is the source.

They give liquidity to LPs.

Endy, as LP, must give the liquidity pool with a pair of two tokens of equal value (e.g. DAI+ETH). He will be paid a portion of the trading fees from the trading activity in exchange. He’ll also get an LP token, which is a credential for supplying liquidity and reflects his portion of the broader liquidity pool.

How to make money with crypto by yield farming[email protected] is the source.

What method does it use to implement automated pricing? This leads us to Uniswap’s AMM mechanism, which is based on the “continuous product market maker” paradigm. This model’s formula is x*y=k, where x and y represent each other’s liquidity and k is a constant.

How to make money with crypto by yield farming[email protected] is the source.

It’s worth mentioning that the model doesn’t change in a linear fashion. In fact, the magnitude of the imbalance between x and y increases as the relative amount of the order increases. That is, when a big order is compared to a small order, the price of the large order grows exponentially, resulting in a growing sliding spread.

How to make money with crypto by yield farmingThe Uniswap price change curve is seen in Figure 1.

LPs must be cognizant of transitory losses in the process of supplying liquidity.

What is impermanent loss (IL) and how does it affect you? Here’s an illustration:

Endy has two possibilities if he possesses 2000 DAI and 1 ETH (1 ETH = 2000 DAI).

Option 1: as a source of liquidity (LP)

  • To construct a token pair, send 2000DAI + 1 ETH to the liquidity pool.
  • Arbitrageurs will purchase ETH at Uniswap (cheaper) and sell to other DEX with a higher price when the price changes: ETH = 4000DAI (outside DEX).
  • As a consequence, the amount of ETH in the pool will decrease, and the price of ETH will rise until it reaches 4000DAI. (the chance for arbitration vanishes)
  • Endy’s LP Token is now at 2828 DAI + 0.71 ETH, which is equal to 5657 DAI.

Option 2: just keep them in your arms.

  • Endy’s assets are comparable to owning 6000DAI when the ETH price changes to 4000DAI.

“Option 1 offers liquidity” costs 343 DAI less than “Option 2 only holds,” resulting in a 5.72 percent drawdown under the identical circumstances. Impermanent Loss is the name given to this kind of loss. This temporary loss will vanish after ETH recovers 2000 DAI.

Compounding is a form of lending. 

An investor in DeFi’s lending platform contributes a crypto asset to the pool in exchange for interest; if the deposit is collateralized, the investor may borrow another crypto asset. DeFi’s lending platform now employs “over-collateralization,” in which the borrower pledges assets worth more than the loan amount in the event of failure. 

Example:

  1. Alex, the investor, has DAI that he doesn’t want to sell, so he puts it in the pool as a lender and lends it to those in need, earning interest in the process.
  2. Bob recognizes a wonderful investment opportunity in DAI but does not willing to sell his ETH, so he borrows DAI using ETH as collateral and pays interest.
  3. Both Alex and Bob are rewarded with COMP platform tokens as a result of this process, which we call Liquidity Mining.

How to make money with crypto by yield farming[email protected] is the source.

Idle & yEarn Yield Aggregator

DeFi initiatives are springing up all over these days. The following issues may arise for investors: 

  • There are too many platforms to select from, each with a different interest rate: how do you know which one is the best?
  •  Interest rates and pricing are constantly changing:
    • What to do if borrowers are mistakenly liquidated?
    • For improved interest rates, lenders may need to continuously modifying the procedures, resulting in hefty gas expenses. 
  • Investors are unable to monitor the market 24 hours a day.

The value of a certain asset offers a complicated investment plan that involves lending, pledging, and trading to optimize earnings, which DeFi’s Yield Aggregators may help solve.  

  • Idle is an ethereum-based system that enables users to invest in a single asset and earn the highest return. Maker, Compound, dYdX, Aave, Fulcrum, and other protocols’ financial services are presently supported. When you make a deposit with Idle, you’ll get a complicated APY that includes the APR from the token you deposited, as well as the platform token IDLE and COMP.
  • yEarn: It’s another Ethereum protocol whose primary purpose is to maximize the return on the tokens invested. It has programmatic asset management to help you implement the most effective approach.

Take, for example, the ETH Vault. 

  1. The investor invests ETH in the ETH Vault, which then deposits ETH in MakerDao as security for the stablecoin DAI loan.
  2. The loaned DAI is put into Curve Finance’s liquidity pool in exchange for LP tokens and basic APYs in the form of trading fees. To obtain CRV incentives, LP tokens may be staked into the Curve’s CRV gauge.
  3. The CRV gained is then converted to ETH and put back into the ETH Vault. This cycle will continue until the investor pulls out.
  4. After a period of time, the investor gets ETH-settled interest and pays a specified amount of management costs.

How to make money with crypto by yield farmingCinematics is the source of this information.

DeFi Projects Pose a Risk

DeFi is an appealing and profitable investment due to the variety of investment choices and ongoing expansion. However, just like any other investment, a DeFi investment comes with its own set of hazards.

Risks associated with the protocol

  • Smart contracts have been hacked (despite audit)
    • There is only one smart contract.
    • Protocols based on a number of smart contracts 
  • Risks associated with the protocol  
    • Scammers: pools that offer a high APY by combining a protocol token with a stablecoin.
    • Wales dumped its token, resulting in a price of zero. 
  • The Token Price’s Volatility
    • Borrower: It’s simple to get liquidated as a borrower. 
    • LP: Temporary loss
  • Operational Hazards
    • Seed phrase and private keys are at danger of being taken from your wallet.
    • Authorization for DeFi:
      • Cancel a permission for a protocol that isn’t currently in use.
      • Make sure you’re not putting all your eggs in one basket.

How do you assess a DeFi project?

Before investing, investors should do their own research (DYOR), focusing on the following six aspects: 

1. Ask the following questions as a starting point:

  • Which type, on which blockchain, has been audited so far?
  • When it goes live, the TVL rating, as well as the number of people who are online 24 hours a day, will be available.
  • Is it better to trade on CoinGecko or CoinMarketCap?

2. A history of successful fundraising with well-known innovators

3. Introduction to the project: official website, public publications, and GitHub

    • Differentiate features, business model, and rivals
    • Is there any bad news? Considering the media’s impartiality, pay attention to Too Good stories. 
    • Model economics (token distribution for the team: between 15% -20% is appropriate)
    • GitHub’s code submission frequency

4. Keep an eye on the pricing trend

    • Is there a rise in a short period of time? Pumping is quite likely. 
    • Risks of whales discharging and creating a huge decline 

5. Pay close attention to the extraordinarily high APY.

    • Scammers’ method of attracting investment 
    • Try to flee quickly yet cautiously before it falls. 

6. Community-based activities

    • Users have raised the following concerns: the quality of the investors. 
    • Administration’s attitude and effectiveness  

As an alternative to conventional investing, DeFi provides a more convenient option for investors. A more open, transparent, and secure financial system is envisaged as more investors, institutions, money, and innovators enter the market.

Footprint Analytics is the publisher of this resource.

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How to make money with crypto by yield farming

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Compound yield farming is a process of using multiple cryptocurrencies to generate more coins. The process is similar to mining, but instead of using computational power, it uses the market. You can use this method to make money with crypto by earning interest on your holdings. Reference: compound yield farming.

Frequently Asked Questions

Can you make money with yield farming?

A: Yield farming is a strategy in which the player buys low-level materials and then sells them on the market for high prices. Its not illegal, but it does require lots of patience.

How does yield farming crypto work?

A: Yield, often referred to as the interest in a dividend or interest-bearing account, is the money that can be made from maintaining an investment. For example, if one has invested $100 and earned 1% yield on their investments over 12 months with no losses (meaning they have not lost any of their initial capital), then they would earn $121 at the end of year two ($101 profit plus another $20 return).

How do you get crypto with DeFi yield farming?

A: You can get crypto with DeFi yield farming. The process is quite simple, you just need to follow a few steps and start earning some serious money from your time.

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