What Is Yield Farming?

DeFi produces a new concept that can change the way investors HODLThe last decade took us on a crazy crypto ride that disrupted whatever came its way. The DeFi boom became the premier talk of the town, whose viability ballooning to $4,000,000,000 in total value locked in DeFi (TVL) and a starting market cap from $500 million to $10 billion in 2020. The power of decentralized finance continued to transform legacy financial instruments into trustless and transparent platforms such as lending and borrowing services, insurance, and exchanges. And amidst the volatility of the crypto space and decentralized finance rose what came to be known as Yield Farming.So, what is Yield Farming?Yield farming is the earning of rewards by staking ERC-20 tokens and stablecoins into exchanges to stabilize the growth of the DeFi ecosystem. Otherwise known as liquidity mining, yield farming allows yield farmers to deposit or lend their idle cryptocurrencies within a mining mechanism, injecting the mining pool with digital assets that will accrue interests to lucrative heights. While similar to the concept of staking, yield farming surfs from market to market scouting for the ones with top yields. Yield farmers, or liquidity providers, are usually required to lock up their crypto assets in a smart-contract-based liquidity pool. They are, in turn, incentivized through a percentage in transaction fees, interests from lenders, or a governance token via liquidity mining. The said returns are cumulatively called annual percentage yield, or APY. The more funds are injected into the liquidity pool by yield farmers and liquidity providers, the higher the value of the issued returns becomes.Is Yield Farming Risky?As with all kinds of investment, yield farming associates with it its own risks. The complexities of yield farming alone offer risks to the borrowers and the lenders. The required investment, to be of…