With great results and flourishment in the last 2 years, decentralized finance is not a secret anymore. When it comes to investors of any capital size investment, decentralized finance presents ample passive revenue generating possibilities. Staking and Yield Farming – two of the largest earning options – which one should you opt for?
As of January 2022, 92 billion dollars of value remains locked in decentralized finance based protocols. The identical sources also state that the growth of decentralized finance on the Ethereum network has increased over 700% in 2021 alone. This development does not appear within the horizon at the end.
We will walk you through what Yield Farming and Staking mean in decentralized finance and how they work. Read on to find them.
What is DeFi?
DeFi, or decentralized finance is a growing Financial Technology within the space of blockchain that depends on distributed ledgers. It is similar to cryptocurrencies. The very model intends to eliminate the authority of banks on money, along with financial services and products. It enables traders, companies and individuals to perform transactions through blockchain, thereby eliminating the need for intermediaries.
Eliminating intermediaries or third parties is achieved through peer to peer networks that use connectivity, security systems and improved hardwares and software.
Two of the greatest ways investors can take advantage of decentralized finance are Yield Farming and Staking.
Staking
Staking has remained as one of the favourite features for investors to help them make the most out of their cryptocurrency assets. For staking your assets, it will mean that you get to earn a rate of percentage reward with time. This is possible through a staking pool. You can compare it to a traditional interest rewarding savings account. The reason of you receiving rewards while staking the tokens is due to the fact that blockchain put them to use.
For doing so, blocking uses a proof of stake. It refers to a consensus mechanism that assures the security and verification of transactions without any intermediate or Bank. If you decide to participate within a staking pool, your cryptocurrency is begin to add to the identical process. Make sure to add a larger amount of assets an investors stakes. Increase your chances of getting chosen by the subsequent block validator.
Yield Farming
Yield Farming, also termed as liquidity mining, refers to a process to make profits from cryptocurrency assets. Yield farming, in some ways, refers to a different level of high risk and high reward version of staking. By making use of smart contracts, it involves lending funds to other people and getting reward fees in return.
These are generally dispersed in the form of the identical token through the formula called annual percentage yield. With more investors taking part in the identical liquidity pool, the rate of annual percentage yield decreases.
It can be competitive as far as the area of decentralized finance is concerned. Here, farmers are readily competing for the best yield when it comes to the token farm.
Which is Better?
The knowledge of cryptocurrency and risk are generally the determining factors when choosing between stacking or farming cryptocurrency assets. Hopefully, our article has helped you in making an informative decision.
Farming and staking are still new passive income models when you compare it to the traditional models of Banking and Financial institutions. These are the terms that are closely associated with one another, where staking cryptocurrencies is often considered as a branch of yield farming. Every strategy comes with holding cryptocurrencies for earning rewards, thereby allowing the investors to make the most out of the ecosystem of decentralized finance.
