The concept of Yield Farming surely creates an imagination of agricultural activity to any mind new to cryptocurrency and the blockchain space. While yield farming may sound a bit obscure, the concepts that apply to farming crops to generate yields have a correlation to these two buzz words that have captivated the world of decentralized finance (De-Fi).
Yield Farming is the current hype of De-Fi, and has hugely become popular among all De-Fi protocols. Protocols that integrate yield farming or liquidity rewards enable user participation in cryptocurrency markets in a passive way. The main reason why it is one of the trending sectors is the promise of huge returns, whether real or imaginary, that are associated with it by many. Yield farming requires little experience and effort, a lot of people have found success in yield farming as a source of passive income. So, how does it really work and how on earth is there a farm in crypto?
In its basic form, yield farming refers to any blockchain protocol that enables any person with some holding of crypto tokens to ‘lock-up’ those holdings with a custodian(the protocol) and in return, they distribute rewards; these rewards are typically distributed as protocol governance tokens. In order words, rather than just keeping one’s crypto assets idle in one’s wallet, one can choose to offer it to a service provider and earn some form of interest.
A fundamental example of this is in lending protocols, creating a peer to smart contract lending/borrowing service. The holder lends his crypto assets to a platform, which in turn makes use of the assets in return for attractive interest payments. Stated simply, to yield-farm in cryptocurrency you must handover custody of your crypto assets to a particular De-Fi platform. In doing so the protocol rewards users, the platform does this as they have some system of benefiting from having token custody. Another common example of yield farming is through providing liquidity to an AMM in return for liquidity incentives -- tokens allotted to liquidity providers. These projects require liquidity to facilitate swaps and bootstrap growth, so it is a win-win for both parties.
De-Fi started on the Ethereum network, so it is no surprise that yield farming from the outset was exclusive to the Ethereum blockchain, with the rewards being in the form of Ethereum-based tokens. The De-Fi space has continued rapid innovation, as other blockchain platforms with yield farming capability have been created and are competing strongly with Ethereum, especially the Binance Smart Chain (BSC).
One of the very earliest forms of Yield Farming appeared in 2018 when a Chinese Exchange, FCoin, created its native token FT, tied its value to the transaction fees of its users, and issued the FT coins as rewards to its users. A portion of FCoin’s revenue was also distributed to her users in proportion to how many FT tokens each user held.
Those were the early days of Yield Farming, but the practice became prominent in early 2020 when a blockchain credit platform, Compound Protocol, began issuing its native COMP tokens as a reward to early users. These rewards were allocated to bootstrap growth to the platform in addition to the default interest payments users received.
The very wide acceptance of Compound Protocol’s approach set off a chain reaction of platforms incorporating similar liquidity incentives into their strategy. Ultimately, this lead to the very fast proliferation of platforms offering yield farming opportunities in an effort to capture the market. A perfect example of this is what is coined as De-Fi summer (June-July 2020), where the first explosion of De-Fi platforms occurred.
Two reasons account for this. First is the attraction of good returns on investment. Many new projects offer yield farming opportunities, with rewards in the form of the project’s native tokens. Lots of people aspire to be early farmers in the hope that the tokens will swiftly increase in value such that they can trade their earnings and make a good profit.
Secondly, lots of Yield Farming platforms offer interest rates far higher than traditional fiat banks. Hence more and more people are going into yield farming rather than keeping money in the bank.
Despite all the promises and glitter that yield farming is, it has some very notable downsides and risks worthy of mention.
Users who adopt Ethereum-based De-Fi projects (the majority of De-Fi users) face very expensive transaction fees, especially in high congestion periods. It is not uncommon to experience transaction fees of tens of dollars and sometimes, hundreds. In fact, a ridiculously high amount of $486 was once registered as a transaction fee in 2020! This creates implications for the average De-Fi investor, those who go into yield farming with a small deposit may discover that it will take them a long time before they can earn enough to be in profit after the deduction of transaction fees. This issue is not so much of a problem these days as blockchains such as the BSC boast much lower transaction fees in comparison to the Ethereum Network.
Another risk for yield farmers is the highly volatile nature of cryptocurrencies. There could be situations where a platform’s reward token falls so much in value over time that a farmer may never be able to recoup his investment.
Again, it is not a pleasant experience to lose your hard-earned money to thieves, but this is a very real possibility as far as yield farming and crypto are concerned. Lots of scam projects have entered the market aiming to capitalize on hype and fraud investors. They set up their platforms, and after investors have committed their funds, the operators shut down their channels and disappear with investor’s funds. It is extremely wise to tread carefully when choosing a yield farm to invest in.
Finally, the software programs that power digital currencies often have loopholes that can be exploited by hackers. This possibility is high with projects whose codes have not been audited by a credible third-party. If there are loopholes in the smart contracts, investors’ funds are at high risk because once the loophole is discovered by malicious parts the entire funds in that farm can be siphoned in a moment. A classical case is that of Harvest.Finance that lost more than $20 million in a hack.
In conclusion, the concept of Yield Farming is gaining great traction and attracting much attention from the crypto community and even venture capitalists. There are many platforms that a prospective yield farmer can consider. These include yield farming networks such as Synthetix, Curve.Finance, Compound Finance, MakerDAO, Balancer, Pancake Swap etc. In the final analysis, the key to finding the right farm that will suit you is to carefully Do-Your-Own-Research (DYOR).
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The bull market has been trending for nearly one year, starting late last year. Uniswap and PancakeSwap continue at their record-breaking pace as the total market continues reaching a new height with innovations and new ideas. Let’s dive into why these exchanges have seen so much success recently, starting with their host chains.
Typical of the bull market, the market has witnessed a new all-time high across major cryptocurrencies. The total market cap will cross a whopping $2 Trillion in just this year. Alongside the growth of the market is a key factor responsible - the introduction of many new users bringing fresh capital.
Check out the following important metrics on BSC and Ethereum. These leading chains have played a pivotal role in crypto ecosystems blooming during this market run.
Reaching a peak of 152 Million distinct addresses yesterday on May 12 and a record 228,094 daily increase, Ethereum has seen tremendous success recently. The uptrend slope graph signifies a growing number of new wallet address popping up on the Ethereum chain.
The BSC also reached a new height of around 72 Million unique addresses with more than 500,000 in daily increase - double that of the Ethereum chain.
The expansion of the unique addresses explains the daily transaction chart of both chains looking very similar - and ready to reach new heights. Two exchanges will be responsible for a significant part of these growths; Uniswap and PancakeSwap.
These two exchanges, born out of different chains, define the way we swap, provide liquidity and interact with the decentralized nature of blockchains. Both of the DEX and AMM services will see continued growth as they jockey for position with the host of exchanges crawling out of the woodwork across both chains.
Obtaining the following statistics from the Dex Ranking platform Debank gives a closer look at both DEXes.
The total transaction of 2.47 million carried out on both DEX services in the last 24hrs places PancakeSwap ahead of Uniswap (V1, V2, and V3) with a whopping $2.5 billion in Volume, with 2,135,910 total transactions carried out.
Uniswap on the other hand saw $2.4 billion in volume, only a slight difference with PancakeSwap volume, but had a significantly lower number of 24hr users and total transactions.
The reason for this is not overly complex; PancakeSwap leverages on the far cheaper and lower fees of the BSC network, which have continued to attract more users and usage. In fact, at the height of the congestion in recent times, the total number of transactions still hasn’t reduced, even despite the now-high fees and failed transactions.
What has been intriguing, without a doubt, is the fact that Uniswap remains the king of DeFi despite its low turnout in the daily chart. Uniswap takes the lead of all other DEXes with a $21 billion market capitalization and $1.6 billion overall 24hr volume.
Compared to PancakeSwap, which has $5 Billion in Market Cap and $744 million overall daily volume less, Uniswap remains supreme. PancakeSwap has struggled to climb up the ladder in the DeFi zone, currently sitting at just the 5th position.
Uniswap is the world-leading DEX and AMM service on the Ethereum chain. Its significance rose to new heights as it played a major role in the DeFi bull run, wherein most DeFi tokens seek their first listings.
Despite the recent market sell-off, its native token UNI has continued to do well, currently sitting at the $37 mark and a Total Value Locked (TVL) of $8 Billion. The platform is presently in its LP migration phase to its newly launched V3.
Following closely on the heels of Uniswap is the number one Dex on the BSC chain. PancakeSwap, the darling of the BSC network, has continued to soar, leveraging on the cheap fees and fast transactions.
Like its counterpart on the Ethereum chain, its native token CAKE has continued to do well, currently sitting on the $30 mark while its TVL is above $9 Billion, a value significantly higher than that of Uniswap with over $1 Billion. The platform, which is also in its V2 phase and LP migration, aims to do more and make more records.
There is no doubt that the Ethereum chain is the current royalty of DeFi and the infrastructure ecosystem. Many popular chains are an extension of the Ethereum chain, using the Ethereum Virtual Machine (EVM), or have been forked from the chain. These chains include Solana Fantom and even the BSC, which has seen more success than many other chains. Yet despite Ethereum’s (and by extension Uniswap’s) lead in total volume, the BSC is seeing a surge of growth fueled by PancakeSwap. It will be very interesting to see how these trends play out once the bull run of the market has come to a close.
Venus Protocol has announced that it is now fully upgraded to Chainlink. Venus had earlier dropped the VIP-23 proposal to allow for an upgrade on ChainLink as its oracle solution will provide a robust infrastructure to secure critical lending/borrowing functions and push prices to higher levels. The upgrade will allow Venus to leverage on Chainlink to create a more secure, trusted, and liquid market on the Binance Smart Chain (BSC).
Venus is a synthetic money market and stablecoin protocol built on the BSC. With its upgrade to Chainlink as an oracle solution, Venus has now leveraged Chainlink to its markets to its price collateral during both loan issuance and liquidation processes. The VIP 213 proposal deployed for the upgrade in Chainlink will provide security and reliability to the Venus Protocol allowing for the timely update of prices and automation of the Venus Market.
Built by crypto wallet and debit card company Swipe, Venus Protocol is the first collateral loan platform on BSC. With Venus, lenders can provide liquidity on various assets and earn interest in LP, there is also an option to take loans in other currencies or mint VAI— the first decentralized stablecoin built on BSC, Venus's stablecoin. One of the benefits of running on BSC is that users will be able to get fast, low-cost transactions while being able to access a deep network of wrapped tokens and liquidity. The way the Venus market works requires price data to determine a fully algorithmic money market such as in loan issuance and loan liquidations. Every time a user requests a loan, a fully algorithmic market is needed to determine the loan size and underlying collateral. Venus also needs to have its prices aggregated and price adjusted to suit market realities, which the BSC does not allow, hence the need for Chainlink.
According to Joelito Lizarondo, founder of Venus Protocol and the CEO of Swipe Wallet:
“As the market leader in providing credit to the BSC ecosystem, it was critical that we scale up our security by upgrading to Chainlink as a means of thoroughly protecting our users’ funds and guaranteeing they alway get fair market prices. Not only are we able to leverage Chainlink’s time-tested security, but it’s native operation on BSC allows us to get consistently fresh data for a much lower price.”
The need to utilize Chainlink’s oracle solution is founded in a desire to provide a more robust and proven infrastructure suitable for Venus’ lending/borrowing functions. The integration with Chainlink is also essential as Venus has the most Total Value Locked (TVL) on BSC, so a superior oracle was needed to increase efficiency. With the upgrade to Venus, users can now expect high-speed data from several premium off-chain data aggregators like BraveNewCoin, plus a high level of security and decentralization.
Chainlink is an oracle protocol on the BSC, providing tamper-proof data and transactions. Chainlink enables developers to connect to any blockchain in a secure way and to power universally connected smart contracts. Chainlink is utilized by organizations to get reliable, secured and trusted data feeds.
Venus is a synthetic money market and stablecoin protocol built on the BSC. With its upgrade to Chainlink as an oracle solution, Venus has now leveraged Chainlink to its markets to its price collateral during both loan issuance and liquidation processes.
Their algorithmic-based money market system is built on the BSC to ensure a completely decentralised lending and credit system in DeFi. With Venus, users can use the collateral supplied to the market to borrow other assets and to mint synthetic stablecoins with over-collateralized positions that protect the protocol.
Upgrading their oracles to the highly-regarded Chainlink product will no doubt provide a boost to Venus. This partnership will both increase security as well as transaction efficiency, granting Venus access to a highly-organized and efficient collection of multi-chain data practically instantaneously. Users of Venus should see increased value from using the project, and can rest assured that their transactions are being handled safely.
Stated simply, to yield-farm in cryptocurrency you must handover custody of your crypto assets to a particular De-Fi platform
The concept of Yield Farming surely creates an imagination of agricultural activity to any mind new to cryptocurrency and the blockchain space. While yield farming may sound a bit obscure, the concepts that apply to farming crops to generate yields have a correlation to these two buzz words that have captivated the world of decentralized finance (De-Fi).
Yield Farming is the current hype of De-Fi, and has hugely become popular among all De-Fi protocols. Protocols that integrate yield farming or liquidity rewards enable user participation in cryptocurrency markets in a passive way. The main reason why it is one of the trending sectors is the promise of huge returns, whether real or imaginary, that are associated with it by many. Yield farming requires little experience and effort, a lot of people have found success in yield farming as a source of passive income. So, how does it really work and how on earth is there a farm in crypto?
In its basic form, yield farming refers to any blockchain protocol that enables any person with some holding of crypto tokens to ‘lock-up’ those holdings with a custodian(the protocol) and in return, they distribute rewards; these rewards are typically distributed as protocol governance tokens. In order words, rather than just keeping one’s crypto assets idle in one’s wallet, one can choose to offer it to a service provider and earn some form of interest.
A fundamental example of this is in lending protocols, creating a peer to smart contract lending/borrowing service. The holder lends his crypto assets to a platform, which in turn makes use of the assets in return for attractive interest payments. Stated simply, to yield-farm in cryptocurrency you must handover custody of your crypto assets to a particular De-Fi platform. In doing so the protocol rewards users, the platform does this as they have some system of benefiting from having token custody. Another common example of yield farming is through providing liquidity to an AMM in return for liquidity incentives -- tokens allotted to liquidity providers. These projects require liquidity to facilitate swaps and bootstrap growth, so it is a win-win for both parties.
De-Fi started on the Ethereum network, so it is no surprise that yield farming from the outset was exclusive to the Ethereum blockchain, with the rewards being in the form of Ethereum-based tokens. The De-Fi space has continued rapid innovation, as other blockchain platforms with yield farming capability have been created and are competing strongly with Ethereum, especially the Binance Smart Chain (BSC).
One of the very earliest forms of Yield Farming appeared in 2018 when a Chinese Exchange, FCoin, created its native token FT, tied its value to the transaction fees of its users, and issued the FT coins as rewards to its users. A portion of FCoin’s revenue was also distributed to her users in proportion to how many FT tokens each user held.
Those were the early days of Yield Farming, but the practice became prominent in early 2020 when a blockchain credit platform, Compound Protocol, began issuing its native COMP tokens as a reward to early users. These rewards were allocated to bootstrap growth to the platform in addition to the default interest payments users received.
The very wide acceptance of Compound Protocol’s approach set off a chain reaction of platforms incorporating similar liquidity incentives into their strategy. Ultimately, this lead to the very fast proliferation of platforms offering yield farming opportunities in an effort to capture the market. A perfect example of this is what is coined as De-Fi summer (June-July 2020), where the first explosion of De-Fi platforms occurred.
Two reasons account for this. First is the attraction of good returns on investment. Many new projects offer yield farming opportunities, with rewards in the form of the project’s native tokens. Lots of people aspire to be early farmers in the hope that the tokens will swiftly increase in value such that they can trade their earnings and make a good profit.
Secondly, lots of Yield Farming platforms offer interest rates far higher than traditional fiat banks. Hence more and more people are going into yield farming rather than keeping money in the bank.
Despite all the promises and glitter that yield farming is, it has some very notable downsides and risks worthy of mention.
Users who adopt Ethereum-based De-Fi projects (the majority of De-Fi users) face very expensive transaction fees, especially in high congestion periods. It is not uncommon to experience transaction fees of tens of dollars and sometimes, hundreds. In fact, a ridiculously high amount of $486 was once registered as a transaction fee in 2020! This creates implications for the average De-Fi investor, those who go into yield farming with a small deposit may discover that it will take them a long time before they can earn enough to be in profit after the deduction of transaction fees. This issue is not so much of a problem these days as blockchains such as the BSC boast much lower transaction fees in comparison to the Ethereum Network.
Another risk for yield farmers is the highly volatile nature of cryptocurrencies. There could be situations where a platform’s reward token falls so much in value over time that a farmer may never be able to recoup his investment.
Again, it is not a pleasant experience to lose your hard-earned money to thieves, but this is a very real possibility as far as yield farming and crypto are concerned. Lots of scam projects have entered the market aiming to capitalize on hype and fraud investors. They set up their platforms, and after investors have committed their funds, the operators shut down their channels and disappear with investor’s funds. It is extremely wise to tread carefully when choosing a yield farm to invest in.
Finally, the software programs that power digital currencies often have loopholes that can be exploited by hackers. This possibility is high with projects whose codes have not been audited by a credible third-party. If there are loopholes in the smart contracts, investors’ funds are at high risk because once the loophole is discovered by malicious parts the entire funds in that farm can be siphoned in a moment. A classical case is that of Harvest.Finance that lost more than $20 million in a hack.
In conclusion, the concept of Yield Farming is gaining great traction and attracting much attention from the crypto community and even venture capitalists. There are many platforms that a prospective yield farmer can consider. These include yield farming networks such as Synthetix, Curve.Finance, Compound Finance, MakerDAO, Balancer, Pancake Swap etc. In the final analysis, the key to finding the right farm that will suit you is to carefully Do-Your-Own-Research (DYOR).
