What Is Yield Farming In Decentralized Finance?

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What Is Yield Farming In Decentralized Finance?
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Article Summary
Hello everyone! Did you hear the word Yield
Farming? Have you thought, it is an important
concept in Decentralized Finance. A simple
definition of Yield Farming is to make more
crypto with your crypto. Well! Get a deep
knowledge of yield farming and how it works in
DeFi?

1. What is yield Farming?
2. Understanding some major concepts involved in
   Yield Farming
3. Topmost popular yield farming protocols
4. How does yield farming work? Risk of yield
   farming

Decentfi
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What is Yield Farming?
One of the easiest ways to create rewards with
cryptocurrency holding is Yield Farming. There
are also terms such as locking up
cryptocurrencies and producing rewards through
them. It is a process of earning returns and
rewards by holding crypto. A simple example of
yield farming is if we take a loan in the bank
and pay it back with interest. Like our
cryptocurrencies are locked up in smart
contracts and get a return in the name of
rewards. " In order to obtain huge rewards, the
best way to hold or lend crypto assets. It is
called Yield Farming. "
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Understanding Some Major Concepts

• We need to know some major concepts involves in
  Yield Farming
• Liquidity Pools
• Liquidity Providers
• Automated Market Maker
• Liquidity Pools
• It is a pool built on a smart contract filled
  with cash.
• Liquidity Providers
• A liquidity provider is a person who invests
  funds into a smart contract-based liquidity
  pool. So the investors can hold or lend their
  crypto assets in a liquidity pool.
• Automated Market Maker
• The concept of yield farming functions based on
  the automated market maker(AMM) model. It is the
  major concept of decentralized exchanges.

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Top Most Popular Yield Farming Protocols
In order to optimize the returns of holdup funds,
yield farmers frequently use different DeFi
platforms. So that they can maximize their
rewards fund. Here are some of the top seven
most famous protocols of Yield Farming. Aave
Compound Curve Finance UniSwap Instadapp
SushiSwap PancakeSwap
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How Does Yield Farming Work?
As we discussed above, the AMM model is closely
related to Yield Farming. Both liquidity
providers and liquidity pools are involved in
this concept. Let us see the working flow of
yield farming. Here is the work of an Automated
Market Maker in yield Farming. A liquidity
provider invests their money into a smart
contract-based liquidity pool. This liquidity
pool controls a marketplace where users can buy,
borrow or exchange their tokens. These platforms
acquire fees while in the transaction of the
shares.
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Risks Of Yield Farming

• Obviously, everything has a risk, yield farming
  also carries some complexity and difficulty. It
  has a significant risk for both borrowers and
  investors.
• It includes
• Smart contract risks
• Impermanent loss risks
• Liquidation risks
• Capital intensive and complicated process

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Conclusion
Apart from traditional finance, the yield farming
concept attracts more users. Nowadays, it's
become an intuitive market - there are many
options to get high returns. But if you want to
start a venture into the yield farming world,
then get complete knowledge before
investing. Best wishes for your future!
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