We’ll talk about yield farming or whats also called yield or liquidity harvesting and its all about lending cryptocurrency and working with DeFi protocols.
Its a mysterious area of crypto…and it can be a dangerous area like old-school day trading back in early 2000’s…because it involves leverage.
Leverage is a word which is how a cave man was able to move a big boulder. He or she used a long stick to be able to move something that normally he/she would never be able to move.
So with the finance market you take a smaller amount of money and you make it into a bigger pile of money so you can win big…or lose so badly that you can’t pay it back.
Its like the old fashioned futures traders and commodities and currencies traders.
You need to know what you are doing and know your risks and if you can sleep at nite.
Its the crack coke of the finance game and some people like this and online games like Candy crush from 5 years ago.
So read this page and as much as you can and then go forward.
Because crypto is unlike traditional types of money which is lent at a bank there can be problems since crypto is not as liquid meaning that there often really isn’t money to back up the crypto.
Many of the banking regulators are nervous about them and think they should be stopped or regulated more because they view them like some type of smoke and mirrors idea.
Its not just about earning interest when lending crypto like with conventional lending.
There apparently can be the possibility of market manipulation.
Things are done in crypto with dApps and automated trading of sorts.
So if you can picture scenes of 20 years ago where sophistocated computer programs were first starting to get developed it became a time of uncertainty and some problematic trading.
Now others will define yield farming as maximizing your capital by leveraging different DeFi protocols.
Basically they try to go after the highest yield by constantly changing between the best strategies among a handful of DeFi protocols.
The one DeFin protocol you hear about all the time is the UniSwap one but some others have names like Curve, Synthetics, and Compound.
You’ll also hear terms in Yield farming like crop rotation since its about rotating your crypto to higher paying yields and terms like APY annual percentage yield.
(under construction Dec 20, 2021)