What is Crypto Yield farming?

Cryptocurrency farming emerged in 2020 with the launch of decentralized finance (DeFi), an emerging financial technology that aims to remove intermediaries in financial transactions. Yield farming is a method of earning interest on your cryptocurrency, comparable to the way you earn interest on money in your bank savings account. 

It involves users lending their cryptocurrency to an exchange in farms or pools, to provide liquidity for trading in exchange for incentives. Lending the coins to other users for trading and borrowing is facilitated by smart contracts running on the blockchain. Investors get compensated with rewards in the form of transaction fees or interest. These rewards are settled in the form of annual percentage yields (APY). If the price of those cryptocurrencies rises, the investor receives higher returns. Decentralized Exchanges can payout rewards in the form of the same coins the farmer deposits, their governance tokens, stablecoins, or another cryptocurrency.

New Decentralized Exchanges and tokens often need this liquidity to have sufficient coins in circulation for a successful market strategy. Farming is a promising alternative to mining as a way for users to earn cryptocurrency rewards. It enables investors to maximize returns on their cryptocurrencies by paying a form of interest on the coins they buy and hold, rather than trade.

Yield farmers can deposit single coins or provide liquidity pairs on Automated Market Maker (AMM) platforms, like PancakeSwap, SushiSwap, TangoSwap, BenSwap, or UniSwap. Farmers provide liquidity in a pool by depositing two coins for an exchange pair. One of the coins is typically the native blockchain token or a stablecoin such as USDC. On PancakeSwap, which runs on the Binance blockchain, coins are primarily paired with the Binance token BNB or the BUSD stablecoin. On Uniswap, which runs on the Ethereum blockchain, coins are mainly paired with ETH or the USDC, USDT, and DAI stablecoins. TangoSwap and BenSwap both run on the Smart Bitcoin Cash network, so the coins are paired with sBCH or their native tokens Tango or EBEN.

Yield farmers are rewarded with a share of the transaction fees that users pay to swap coins. The amount they receive is proportional to the percentage of their contribution to the pool – the more they invest, the higher the return. Investors can lend their cryptocurrency to the liquidity pool for a few days or an entire year, but they usually pay transaction fees for joining or leaving the pool. 

APYs for different liquidity pools are highly competitive and change frequently, so yield farmers need to invest a lot of time researching the highest yields, often switching between pools to boost their returns.

All gains, no pains?

While returns can be high, yield farming can be risky, volatile, and more complicated than putting money in a bank savings account. Protocols and cryptocurrencies earned are extremely volatile and can lead to rug pulls wherein developers abandon a project and make off with users’ funds. 

Another risk of yield farming is “impermanent loss”. In liquidity pools where investors deposit pairs, if one of the coins is a stablecoin and the other mounts in value, the AMM adjusts the ratio of the two tokens to keep the value constant. This results in a disconnect between the value of the coins compared with how many were deposited. 

If the investor removes their cryptocurrencies from the pool, he experiences a permanent loss that may not be covered by the fees they have received as a reward. In that case, they would have made a higher profit if they had not deposited their coins in the pool.

Yield farming vs. staking

While often used interchangeably, “yield farming” and “staking” represent two different concepts. They are both popular DeFi approaches for obtaining plausible returns on crypto assets, but they differ in the way participants must pledge their crypto assets in decentralized protocols or applications. 

Let’s have a look at some basic characteristics of how staking differs from yield farming. 

Staking is a form of cryptocurrency mining that secures a blockchain network rather than providing liquidity. The more validators that stake their coins, the more decentralized and secure a blockchain becomes.

In staking investors agree to lock up their assets for a fixed period. They are often required to stake a minimum number of tokens. Staking rewards usually take the form of fixed APY rates of around 5%, which is significantly lower than standard yield farming APYs.

New cryptocurrency investors often find depositing liquidity pairs on DEXs for yield farming quite challenging. These investments require ongoing research so that investors stay ahead of the most competitive rates and at the same time avoid potential scams. While staking provides lower returns, it is less complex for investors, who can lock up their funds for extended periods.

When weighing between yield farming or staking you should consider how experienced you are in using dApps, what is your risk tolerance, and how much time you’re ready to spend on researching farms and APYs.

Yield farming involves moving crypto through different marketplaces. It is currently the most significant growth driver of the Defi sector, helping it expand from a market cap of $500 million to $10 billion in 2020 alone.

GoCrypto token yield farms

GoCrypto’s native GoC token yield farms are now available on TangoSwap and BenSwap in the form of GoC/TANGO LP and GoC/BCH LP farms. Both TangoSwap and BenSwap run on the Smart Bitcoin Cash network.  

The GoCrypto (GoC) token is a multi-chain utility token issued on the Bitcoin Cash (SLP) blockchain, Smart Bitcoin Cash (smartBCH) chain, and the Binance Smart Chain (BSC), with Solana (SOL) soon to follow.

GoC is integrated into all our applications and services and is used for payments on the GoCrypto platform and in our loyalty program. This makes GoC a true utility token with wide usability.

The total supply of the GoC token is 299,095,759 GoC and will never exceed this amount, no matter how many blockchains the GoC token supports. We are not minting and burning tokens in real-time; instead, we have duplicated supplies on every supported chain that is illiquid and held on reserve addresses. A certain number of tokens can only become liquid when the same GoC amount from another chain gets locked on one of the reserve addresses through the GoC Bridge App

Users of our Elly Wallet can use GoC for shopping at local and online stores; in selected countries, they can receive a tokenback reward for every purchase. We continue to broaden the utility of the GoC token and add value for merchants and users.

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