How to participate in the growing harvest of DeFi
Decentralized finance or DeFi exploded on the Ethereum blockchain this year. In doing so, industry-leading applications such as trading protocols Uniswap and Curve have never been more used or popular.
In recent months, this DeFi growth has been accelerated by the advent of the new “farm product” phenomenon. But what is crop farming, how does it work and how can you get involved?
In today's post, we're going to break down farming for beginners so you can finally harvest your own crypto 👨🌾️🚜
What does farming mean?
DeFi applications are still in their infancy, and they want users to grow and develop.
To that end, Diffie's projects are moving more and more into production this year. This process includes protocols for distributing governance tokens to their users to create momentum and encourage support from key stakeholders.
Take the example of major DeFi lending and borrowing project Compound, which farmed around its COMP management token earlier this year. Compound COMP distributed retroactively to its previous lenders and borrowers and continued COMP awards to current ones.
In other words, you can just say COMP to use a compound – and in the future in compound management. That is agricultural production in a nutshell.
What you need to start a farm
To start farming, your checklist is pretty simple. You only need the following
An Ethereum address (ideally a hardware wallet) with some ETH to pay for transactions
And that's all! Once you've set up your wallet and ETH, you'll be ready to analyze and identify which farming opportunities are right for you.
Finding farming opportunities
At this point, new agricultural campaigns are being added every day. Knowing which ones are worth participating in is half the battle.
The good news is that many resources have recently emerged that make this process much easier. Some of these include:
Iterscan's new Product Farms page offers an extensive list of projects with unfiltered and ongoing Product Farm campaigns. The website yieldfarming.info offers a list of farming opportunities and detailed wallet-based statistics, such as your estimated annual percentage yield (API), and additional crypto market information site Koingeco has a new farming page that hosts High Yield. It offers tools like APY calculator, breakeven calculator and more.
Remember APY + gas prices
You don't want to use or engage with a production protocol without having a general idea of what API to expect to do so. Some of the sites mentioned above are very good for this. Here are a few other things to keep in mind:
Production farms display APY statistics for their pools on their own site. These can be misleading or confusing at best, so don't take these statistics as the final word. Pools with higher APIs are riskier, higher rewards. Tread carefully. Farming campaigns typically have different levels of distribution, so APIs change over time. Learn how these distributions are set up and change (for example, token rewards decreasing over a 4-week period).
Then another important consideration is gas. On Ethereum, users must pay a fee or “gas” to perform their transactions.
With the Ethereum DeFi arena currently booming, demand for Ethereum blockspace has never been higher and gas prices have risen accordingly.
That said, getting into and out of production farms can be very expensive lately. Be sure to consider these gas costs when trying to figure out which options are best for you.
Jumping into liquid pools
Provide farm centers around drainage basins. When you deposit crypto assets into these pools, you receive LP tokens in return (and thus the possibility of earning the pool's transaction fees).
Fortunately, it's never been easier to provide liquidity to the hottest farming pools using DeFi dashboards like Zapper.fi or Zerion. These services allow you to add your assets wherever you want and basically click a single button. Then, it's time to wrap up.
Stop to work
Once you have your LP tokens for your farm of choice, you'll want to go as a stakeholder to start your target project's management token farm. Take, for example, Uniswap's new UNI farm.
One of Uniswap's first four UNI rewards pools is the ETH/DAI liquid pool. Suppose you generate your ETH/DAI LP tokens hypothetically. Then simply go to Uniswap and follow these steps.
Click on the UNI tab Click on the ETH/DAI Deposit button Click on the Stake button
Complete the transaction and there you have it: you will automatically start earning UNI as long as the farming campaign continues. In addition, you can follow this same general process when you want to participate in other farms.
Farming product for beginners: yEarn Vaults
The harvesting protocol yEarn has become very popular in DeFi because it automates the harvesting and makes it easy. One of yEarn's early stars is Vaults, which are DeFi products that allow you to automatically extend your invested securities.
For example, consider yEarn's yETH Vault. You deposit ETH into Vault, and then the system starts working its magic to use that ETH. When you do this, you will get a lot of return in ETH. It's simple, straightforward, and you don't have to do anything other than save the asset to Vault.
Also, yEarn offers different Vaults, such as yLINK Vault for those who want to make their chainlinks longer.
The prospects of management tokens
At the end of the day, production farmers are symbols of agricultural management. These tokens can be marketed for quick profit, but they also give holders the opportunity to own and collaborate on the protocol they will use in the future.
This is new territory not only in the crypto economy, but also in the world. Managing these protocols is a huge ongoing effort. It will be interesting to see how agriculture and management play off each other in the coming years.
Bitcoiners can also join
Just because your portfolio is BTC heavy doesn't mean you should sit on the sidelines when it comes to farming.
In fact, the most popular farm pool in all of DeFi right now is the Uniswap ETH/WTC pool, which currently has over $400 million in value locked (VL) according to Coingecko. So here's what you should do:
Convert some of your BTC to WBTC Save your WBTC to Uniswap's ETH/WBTC pool farm UNI (and sell it for more BTC if you want!)
Beware of dangers and scams
There are many risks involved in crop farming. First, don't go chasing after every farming opportunity trying to find the next big thing. Scammers are popping back up to take advantage of the buzz.
There's also the risk of bugs, hacking, and constant loss (which means you'd be better off holding the asset, e.g. ETH, rather than serving as LP in a specific pool).
Once you wrap your head around these dangers, the fields are yours to farm.
