In 2022, all parts of the digital market were affected by the correction. Even though performance is getting worse, the DeFi sector is still very popular. Profitable farming is one of the things that makes decentralized finance possible. There are high returns on investments in liquidity pools and lending platforms, up to 4,000% per year. The risk is limited by how new and volatile the coin is. Between 2018 and 2020, these platforms ran on the Ethereum blockchain, so only investors with a lot of money could use them. In 2022, everyone will be able to use cryptocurrency farming as a tool. Many DeFi services run on networks that don't charge much. $10 can be put into liquidity pools, staking platforms, or lending platforms.
What does Cryptocurrency Farming mean?
In 2020, this way of making money was used for the first time on the Compound decentralized cryptocurrency exchange development. Clients could invest in liquidity pools and give out loans on landing platforms for a fee. Native COMP tokens were used to track profits.
The Ethereum network was where the first DeFi worked. In 2021, there will be blockchains that cost less (Cosmos, Polygon). In the Ethereum ecosystem, 62% of all decentralized financial services will be used by 2022.
The interest rates of liquidity providers are set by an algorithm based on supply and demand. The reward amount may change based on how the market is doing.
How does crypto farming work?
Locking coins in liquidity pools is a profitable way to make a lot of money from farming. Investors are encouraged by the protocols, which offer good cryptocurrency rates and low transaction fees. The total amount of money made is shown as an annual percentage rate (APR).
For cryptocurrency farming to make you money, you need:
- Choose a service and link a wallet to it.
- Put in two coins in equal parts (price ratio). In exchange, the algorithm will add LP tokens to the account. The user's share of the pool is equal to the nominal value.
- Zip LP-token.
Every day, profit is made.To get it back, you have to pay a network fee. Money can also be put back to work. You have to unlock LP tokens before you can withdraw money. This can take between a few minutes and two weeks. You can trade free tokens for the first assets.
As the price of one coin goes up, its value drops in comparison to another. So, the investor will get a different amount of each asset, but the total cost will stay the same. Losses could be made up for by high interest rates. Protocols can offer new coins that are not yet traded on exchanges as an extra incentive.
What can you make?
An annual percentage rate (APR) is used in farming with cryptocurrencies to bring projects into a single format. The indicator is not fixed; it changes every block based on the size of the pool, how much is being sold, and how much is being bought.
Farmers with a lot of experience are always looking for new jobs with better terms. When figuring out how much money a business can make, the following factors should be taken into account:
Prices for cryptocurrencies.
If rates drop by 50–70%, an income of 50–300% per year will not be enough to make up for the losses.
Currency for rewards.
Most services use their own tokens to pay. Usually, there is no limit on how many of these assets can be made. Without more work from the developers, the coins are likely to lose value over time. In terms of dollars, the investor will get less.
Irregular losses.
Putting assets that are hard to predict into a pool is less profitable than just keeping them. High interest rates make up for any losses that might happen. You must get out of the trade at the price you bought it at or you will lose. A pool of stable coins is the safest choice (yield up to 15 percent per annum).
How to start your own farm?
Anyone can become a provider of liquidity. You don't have to sign up and prove who you are to make money with DeFi projects. For cryptocurrency farming, you need:
- Make a wallet that works with the chosen blockchain. MetaMask works well for DeFi on Ethereum, Binance Smart Chain, and Polygon.
- Add money to your wallet. You can move tokens from an exchange or another place where they are stored. There is no help for Fiat.
- Bring the storage up to date with the platform.
- Choose a pool. Deposit coins.
It's enough to keep an eye on how rates change in pools and reinvest profits about twice or three times a month. Cryptocurrency transactions come with a lot of risk, so it's best to take money out regularly. Farming coins is not a surefire way to make money. An investor could lose money if the exchange rate drops sharply or if the coins slip out of their hands.
The Best Platforms to Farm
The goal of decentralized finance services is to make it easier to trade assets and get cash. Just like in a regular bank, you can make money in DeFi projects by making a deposit or getting a loan. These things are true of decentralized protocols:
- There is no group in charge.
- You don't have to prove who you are.
- They pay out a lot of deposits.
Uniswap
In July 2022, the service will have the most trades of any DEX. In 2018, the Uniswap exchange was set up. Hayden Adams, who started the project, came up with the idea of automatic market making. Protocols in liquidity pools use this idea.
The Ethereum ecosystem is where Uniswap works. In May 2021, the developers put out version v3 of the platform. Total liquidity has become an important part of the update. The algorithm distributes assets not evenly but where they are needed. This method makes more tokens change hands, which means that farmers' income goes up.
PancakeSwap
Binance Smart Chain is the platform for the popular app (BSC). Customers of PancakeSwap can get liquidity and exchange tokens for low fees.
As extra incentives, the developers have linked a reward in the form of lottery tickets and NFT trading. During the pre-launch phase of IFO (Initial Cryptocurrency Farming Offering), you can also buy tokens and vote on how the platform should grow.
Curve Finances
The decentralized service is mostly about trading stable coins. On Curve Finance, you can get a good rate when you trade secured coins. The rules of Ethereum are used to make the protocol work. When you block assets in liquidity pools, you get CRV tokens as a reward.
Sushi Swap
The platform is a copy of the Uniswap exchange and uses the same codebase. SushiSwap ranked eighth in 2021 when it came to assets that were locked down (TVL). As of July 2022, the platform has a TVL of $348.2 million, which puts it on the sixth spot in the Crypto.ru ranking.
In terms of how many things it can do, the service is better than its predecessor, Uniswap. More than 16 blockchains can be used with SushiSwap. Users can do the following:
- Coins in liquidity pools are blocked.
- Staking in cryptocurrency.
- Using leverage to trade.
- Landing and making money in other ways.
Osmosis
The Cosmos network is where Osmosis DEX works. Customers of Osmosis can:
- Exchange coins.
- Get rid of cryptocurrency.
- Make money from the supply of cash.
Individual pools offer extra rewards in the form of tokens for the Cosmos network. The blockchain was chosen because it is easy to use and doesn't cost much. The fees for transactions are paid for with native OSMO tokens. There are many operations that happen without commissions (withdrawal of funds, adding liquidity to the pool).
Conclusion
Experts think that the DeFi market could be big for many years to come. The sector offers an alternative to the traditional banking system that is open and clear. This is why people like decentralized finance so much.
Every year, new projects hit the market for DeFi. Liquidity farming, staking, and landing are all ways for developers to make a lot of money. Before getting started, the investor needs to figure out what the risks are.
Unlike banks, there are no rules about how decentralized finance works. So, users are not safe from hacker attacks or scams by developers. Diversifying your investments across different dApps is a good way to lower your risk.
