A Beginner’s Guide To Yield Farming – Dos And Don’ts

What is Yield Farming?

Yield Farming, also known as liquidity mining, is the process of staking cryptocurrencies to earn rewards. Unlike profiting through trading in exchanges, yield farming is a concept based on the decentralized finance sector. Investors can also earn tokens by engaging in various DeFi applications.

Yield farming is new to the crypto sector, and it is now almost as popular as an Initial Coin Offering (ICO). Investors have been flocking to this sector to earn rewards, increasing demand and boosting the value of rewards generated from the project.

DeFi yield farmers usually opt for stablecoins such as Tether (USDT), Dai or USD Coin (UDSC) to stake on various platforms because they make it easy for investors to track price movements. However, other cryptocurrencies such as ETH can also be used.

Do’s and Don’ts of Yield Farming

Many benefits are arising from yield farming, with the most apparent being profit-making. The first tip for yield farming is to invest early in a new project to earn token rewards whose value will increase.

Just like speculating, you also need to have the proper timing of when to sell your token rewards and accumulate profits. If you sell these rewards at the right time, you can earn huge rewards to later invest in other DeFi projects and earn more yields.

When venturing into yield farming, you need a substantial amount of capital to make significant profits. However, yield farming is also volatile because you will be exposed to liquidation risk if the market crashes. Hence, when staking your capital, be ready for any eventuality.

Most importantly, yield farming is not as easy as crypto speculating. Yield farming strategies are complex, and the more complex they are, the higher the possibility of a successful yield. If you venture into yield farming without having any idea of how the underlying protocol works, the risk of losing your money will be higher.

Yield farming can be very lucrative, and at the same time, it can be perilous. Hence, exercising caution is very important to ensure that you minimize your losses in case of liquidity risk.

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