BENEFITS OF YIELD FARMING
-Decentralized financial yield farming ensures that it is open to all, that all actions are transparent, and that it is not dependent on the beliefs of the parties involved.
-Due to its widespread popularity and utility, numerous applications and exchanges will allow you to participate in the process of yield farming
-Getting started with yield farming is a breeze. You only need cryptocurrencies and a cryptocurrency wallet to participate.
HOW DOES YIELD FARMING WORK
Liquidity providers are users who contribute their bitcoins to the DeFi platform’s operation (LPs). These LPs contribute coins or tokens to a liquidity pool, which is a decentralised application (dApp) built on smart contracts that hold all of the funds. When LPs place tokens in a liquidity fund, they are paid a fee or interest based on the underlying DeFi platform that the liquidity pool is running on.
Simply said, it’s a way for you to earn money by lending your tokens through a decentralised application (dApp). There is no middleman or intermediary in the financing process because smart contracts are used.
A marketplace where anyone can lend or borrow tokens is powered by the liquidity pool. Users must pay fees to access these marketplaces, which are used to compensate liquidity providers for staking their tokens in the pool. The Ethereum platform is where the majority of yield farming takes happening. As a result, the payouts are an ERC-20 token. While lenders can spend the tokens however they like, the majority of them are currently speculators looking for arbitrage possibilities by profiting from the token’s market swings.