What is cryptocurrency farming

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Yield farming is a form of investment that is made using Ethereum and smart contract technology and is increasingly used among cryptocurrency users. The yield farming is based on crypto activos buying mainly tokens ERC, as Dai and protect them to generate value. But how does it work and how is it different from other forms of investment? Simply put, first of all, you can diversify the investment platforms used to place your funds and increase your capital.

But the process involves more than this, becoming an activity that requires a certain level of strategy on the part of those who wish to invest in cryptocurrencies or tokens. Thus we find a new term: liquidity pools of liquidity pools. Each investment platform has this tool, which is basically a smart contract that contains funds. When a user allocates capital in a certain token or cryptocurrencies, they become a liquidity provider, which generates income from the platform in the form of rewards depending on the protocol that each service handles.

Finally, we can proceed to experiment and choose the best protocol or service to profit from our capital doing yield agriculture. Farming in practice Currently, there are projects such as MakerDAO which is the issuer of the stable coin or stable cryptocurrency Dai and a forerunner in the practice of farming or performing yield agriculture. For example, if we want to do yield agriculture, we can go to a decentralized exchange like Uniswap, where it is possible to create a pool of liquidity or be a provider of liquidity.

Once on the platform, we can deposit tokens or cryptocurrencies ether and Dai, for example in a smart contract generated by the platform, which allows any user to exchange their tokens for ours in this pool. Of course, we must clarify that we are talking about important amounts since a liquidity pool could have, for example, 1, ETH and 1,, DAI.

The Bitcoin blockchain is based on PoW, which uses computing power to solve complex cryptographic calculations to verify transactions and create new blocks, rewarding miners with cryptocurrency coins. Using staking rather than computing power in a coin mining farm requires far less energy, making it an energy-efficient alternative to PoW. The massive computing power required to mine bitcoin has made it relatively inaccessible for most investors, with large mining farms using specialised computer processors now accounting for most new bitcoin creation.

Some protocols require users to stake their coins to participate in governance and vote on development decisions, demonstrating their commitment to the success of the project. Centralised cryptocurrency platforms such as Coinbase, FTX, BlockFi and Nexo allow users to stake their cryptocurrencies, paying them interest in exchange for lending out their deposits. Exchanges handle the validation process on behalf of investors, freeing them up to stake multiple cryptocurrencies from a single platform, rather than across multiple platforms or DEXs.

Unlike with yield farming, in staking investors agree to lock up their coins for a fixed period and are often required to stake a minimum number of coins. Depositing liquidity pairs on DEXs for yield farming can be challenging for investors new to cryptocurrencies. It also requires ongoing research to keep track of the most competitive rates while avoiding risky new coins that turn out to be scams.

Staking provides lower returns, but is more straightforward for investors, who can lock up their funds for extended periods. Whether you choose yield farming or staking should depend on your experience in using dApps, your risk tolerance, and the amount of time you want to spend on researching farms and APYs.

Yield farming — locks up coins to provide liquidity for decentralised cryptocurrency exchanges and new cryptocurrency launches in exchange for rewards in fees and coins.