Auto yield farming is the favor of the times when it comes to the crypto world. This is on account of its great ability to come up with innovative strategies that involve deploying crypto assets temporarily for the benefit of start-ups to earn its possessor additional crypto. The idea is to leverage one’s crypto resources in a manner that obtains maximum return on them. This smart cryptocurrency investment strategy promises better returns than one would get via conventional investments.
Yield farming is essentially about lending cryptocurrency in lieu of interest, fees or more importantly obtaining units of a new cryptocurrency. Any appreciation that the new coin sees is all a premium. Here, the lender can lend their crypto assets to different protocols that offers different interest rates for different crypto pairs. Yield farming is the process of lending crypto assets to different protocols, switching the protocols from time to time so as to earn maximum profits.
There are several ways in which yield farming provides returns. One of these is token prizes in the shape of incentives that bring about liquidity. Such coins are distributed over periods ranging from weeks to years. Such cryptos can be traded on DEX and exchange services like Binance or Coinbase. Such tokens help in governing a system. Then there is transaction fee revenue which could be in the shape of commission arrived at the time of pool development and could vary anything between 0.003% to 15%.
A dapp or a decentralized app uses the blockchain distributed ledger technology instead of a central operating system. The way ahead is to lend digital coins via a dapp like Compound, which further lends these to speculators. While the interest rates may vary according to the demand, the day-to-day interactions pertaining to the compound service is enabled with the help of new coins, apart from interest and other fees. Any appreciation in the tokens has a direct positive correlation with the returns.
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DeFi apps have been used by people to earn interest by lending their cryptocurrency. Instead of via agencies like banks, there are automated protocols of dapps. What’s different about new age mechanisms like Compounds is the fact that the tokens given to both lenders and borrowers have future rights to cash flows, thereby creating a stake for people to govern as well as improve the networks.
These are certain things that you need to be familiar with when it comes to automatic yield farming. The first thing has to do with liquidity or the convenience with which a digital asset is converted into actual funds, while not at the same time impacting the market price. A liquidity pool on the other hand denotes a sum of money locked in what is a yield farming smart contract that helps enable decentralized trading and lending.
A liquidity provider or a market maker is someone or an organization who offers a buying or selling price with the intention of earning profit via a bid-ask spread or turn. Then there is the automated market maker model that enables trading assets without requiring any permissions by applying liquidity pools in a place of relying on traditional market approaches. This is the very essence of automated yield farming.
Farming rules: As the name suggests, auto farming automates the yield farming process. The farmer should be given enough options to control the autofarming using farming rules. In short, the farmer should be provided with option to select when to stop the auto farming process or initiate a new one.
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There are quite a few yield farming tools that can help one track one’s investments. One can easily check project availability and the right kind of crypto value to deposit. The thing about DeFi is that it is quite nimble and interoperable. In fact, there are systems that auto-move crypto from one service to another allowing optimization of investment opportunities.