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Though relatively new in the cryptoverse, the Ethereum network continues to make significant contributions in the space. One of it’s most important offshoots is Decentralized finance (DeFi). The year 2020 has witnessed increased Defi investments, a tool that promises to transform financial transactions radically.
But what is yield farming? Secondly, what is its significance to the financial space? Again what are some of its unique product offerings? This article aims to package this novel yet revolutionary idea of taking the crypto space by storm by answering these questions.
What is Defi Yield Farming?
Also known as liquidity mining, yield farming is generating rewards from crypto that a person holds. Critical to its functioning is liquidity pools, a set of smart contracts that hold funds. The users funding the pool are called liquidity providers (LP). For their contribution, Defi platforms reward LPs with tokens.
Currently, the Ethereum blockchain is the only one supporting yield farming. Additionally, the rewards are an ERC- 20 type token. That said, developments within the space could see other smart contract capable blockchains serving the same function.
What is the Significance of Yield Farming?
Liquidity mining is important in the following ways:
It Ensures a Project’s Sustainability
A major concern for any crypto project is how to attain liquidity. Liquidity mining helps alleviate this worry. Through pooling users, funds projects remain liquid enough to carry out their objectives, including lending.
It’s a Means for Earning Passive Income
Liquidity providers draw income from participating in liquidity pools. First, their platforms incentivize them by rewarding them with tokens. These rewards add to the amount of crypto they own.
Secondly, platforms operate Automatic Market Makers( AMM), smart contracts governing crypto trade. This feature enables direct trading between the LP and other users. Each transaction attracts fees that the platform consolidates to share with the LPs. This way, liquidity mining becomes a convenient way of earning passive income.
Helps to Decentralize a Project Further
Decentralization is critical to the functioning of any crypto project. Yield farming helps reduce the control that the platform’s developers wield.
By rewarding LPs with governance tokens, platforms dilute the developers’ stake. At the same time, they increase the level of the community’s ownership. Thus, users have an eater say in how the platform runs.
Unique DeFi Projects Worth Trying
Having understood Defi and yield farming, let us now turn our attention to some of the platforms worth trying.
Defi Yield Protocol (DYP)
Among its salient features are:
- DYP Anti-Manipulation Feature – A major concern by DeFi critics is that whales have the power to take control of a DeFi network. DYP takes care of this concern by integrating a DYP anti-manipulation feature that ensures that the rewards from supported tokens (DYP/ETH, DYP/USDC, DYP/USDT, and DYP/WBTC POOL) are automatically converted from DYP to ETH at 00.00 UTC;
- Users have access to ETH Mining Pool- DYP is fully backed by an Ethereum Mining Farm with a 35 GH/s Hashrate. Also, five million DYP will be distributed to miners as an incentive to join the pool and grow the DYP platform over a period of time. Users can also stake their crypto assets to earn DYP via an automated yield farming contract;
- Has a DYP Earn vault with a yield farming contract that automatically enables users to gain from liquidity mining – The automated Earn Vault will distribute 75% of profits to liquidity providers while the 25% left will be used to buy back their protocol token to add liquidity and maintain token price stability;
- Allows pool stacking – users can stake on DYP- ETH, DYP-USDC, DYP- USDT, and DYP-WBTC – DeFi Yield Protocol aims to change the way decentralized finance is perceived by ensuring equity in the control of funds on its platform;
- All the smart contracts are audited before use, and the staking pools use the Anti-Manipulation Feature.
Sync Network is a Defi platform offering CryptBonds-a type of financial Non-Fungible Token (NFT) – to the market. It aims at improving the liquidity within the crypto space, thereby strengthening crypto as a whole.
The following features define it:
- Supports a wide range of tokens for creating CryptoBonds
- CryptoBond reward– holders, earn SYNC tokens for their long term holdings.
- It’s trustless- holders enjoy trustless- transfers, trading, and Proof of Long Term Position.
- Bond trading- one doesn’t have to wait for their bonds to mature; they can liquidate them anytime they wish to
yEarn Finance (YFI)
Central to Yearn finance’s protocol is providing users with higher APY. YFI holders control the governing rights with a total locked value of over $ 200 million. Additionally, it has the following features:
- yVaults- are yield mining robots that help maximize profits while reducing risk
- Automatic funds switching between lending platforms
- Zap tool- enables users to switch between stablecoins
- yInsure Protocol- underwritten by Nexus Mutual, it insures against financial loss
It is a P2P crypto lending marketplace using the fungible token as collateral. Its standout features include:
- The option of lending or borrowing ETH or DAI
- Besides the interest charged on loans, borrowers don’t pay additional fees
- Short term loans at competitive rates
- Supports major NFTs such as Gods Unchained, Decentraland, Cryptovoxels and Cryptokitties
- Direct connection to Ethereum wallet allows direct borrowing
- Less than one minute transaction times
- Competitive interest rates
Decentralized finance is the buzz all over the crypto space. A disruptive product in nature, it promises to revolutionize the finance sector. At the core of DeFi’s function is yield farming.
Through this process, crypto holders can earn income on the idle reserves. Additionally, yield farming enables platform sustainability besides decentralizing ownership. As the market is still young, many products keep emerging.
These have their strengths and shortcomings. The large pool of competing products is a few with outstanding features, as this article has shown. The development of the technology underpinning Defi makes for exciting times in the cryptosphere.