In this lecture, we will talk about farming and ledding.
Farming
Farming is a type of cryptocurrency investment where you put your coins in a liquidity pool or lend to others. For this, you are rewarded in the form of interest or transaction fees. Farming is almost any way to make money on DeFi protocols.
How does farming work?
Profitable farming is the locking of coins in liquidity pools to generate high income. The protocols incentivize investors with attractive cryptocurrency rates and transaction fees. The cumulative profit is expressed as an annual percentage of APR.
The larger the pool, the lower the income of participants. The platform allocates a fixed amount of rewards for each token store. As the audience grows, the share of an individual participant falls.
The role of the liquidity pool
Early DeFi applications experienced high slippage. Due to low liquidity, the exchange took a long time. Centralized exchanges (CEXs) do not have this problem. Clients place orders manually. Service employees analyze the order book. If there is not enough liquidity, the exchange attracts market makers.
On the DEX, for a quick exchange without intermediaries, liquidity pools are used — storage of pairs of tokens. Any participant can become a cryptocurrency supplier and receive a high income. A smart contract performs instant conversion and adjusts the rate (automatic market making).
DEX users can quickly and anonymously exchange assets with minimal slippage. Liquidity providers are highly rewarded based on the funds deposited.
How much can you earn on farming?
Farming profitability for DeFi projects can vary greatly. As a rule, the more funds are blocked on the platform, the lower the profitability. Newer platforms offer higher returns but are more risky.
Also, the yield depends on the type of crypto assets, for example, the yield in liquidity pools from pairs with stablecoins is less, but the risks are not so high. If you add a couple of stablecoins to the pools, then the yield rarely exceeds 20%. And pairs of volatile altcoins can bring hundreds and even thousands of percent per annum, but the risks will be very high.
Farming requires a lot of investment. If you invest only $100, you may spend more on commissions than you earn.
The main risk of farming is a fall in the rate of crypto assets, due to which holders may lose part of their profitability and their own funds.
Another risk is scammers who can hack the exchange and steal assets. New platforms do not always pass security audits, and smart contracts can be vulnerable to cyberattacks.
Landing
Cryptocurrency landing is an opportunity to lend your funds at interest to an exchange or lending platform that use them at their own discretion: increasing liquidity, subsequent issuance of loans, lending to margin trading, etc.
Its essence lies in the fact that the user already owns or acquires some number of coins, then leases them to a third party (platform), which will put the funds into circulation and will act as a guarantor of their return.
Where can you practice landing?
The most reliable sites are:
Binance;
Gate.io
Bitmex.
You can place money for a period selected by the user from a week to 3 months. Profitability depends on the type of coin, term, landing page and site. The maximum yield is up to 350% per annum.
It should be noted that earning on a landing page is considered high-risk, but a promising high income in a good scenario can fully compensate for the degree of risk
At the same time, do not forget about the cold and sober calculation. If you chase easy profit without thinking it through thoroughly, you can not only be left without income, but also lose your invested capital.