The benefits of yield farming through a DeFi/e-commerce project – Cross-chain possibilities of Xion Finance to maximise earnings
The age of disruption continues this 2021 since the early days of Bitcoin and its underlying blockchain technology over a decade ago with no signs of slowing down. Decentralized finance (DeFi) and yield farming took the forefront last 2020, starting the year with a decent $620 million in the pocket but ended it in a loud bang with $18.5 billion in TVL, or total value locked in assets. We can confidently say that there is no turning back to the obsolete ways of doing banking and finance. In daily headlines, we can see how governments are beginning to regulate the onslaught of permissionless protocols that are inevitably disrupting the present and redefining the future landscape of global financial systems.
The blockchain revolution empowered the development of DeFi projects based on cryptocurrencies, native coins and tokens, smart contracts, and non-fungible tokens, or NFTs. As we have infinite ways of doing business online, we were also exposed to earning as much with what we already have – our funds.
Today, we take the case of yield farming.
You are rewarded as a yield farmer by staking your idle cryptocurrencies, ERC20 tokens, and stablecoins, depositing or lending it to defi projects to stabilize its growth. Yield farming is also known as liquidity mining, which allows farmers to invest their funds in a mining pool that will earn them generous profits as the project develops. It is close to staking, but yield farming goes around shopping from market to market to look for the more lucrative offerings.
As liquidity providers (LP), yield farmers are asked to lock up their crypto investment in a liquidity pool via smart contracts. They will earn through incentives coming from percentages in transaction fees, lending interests, or a governance token. Since the crypto market is highly volatile and prices change often, returns are cumulatively computed, for example, by APY or annual percentage yield. The bigger the amount of funds accumulated in the liquidity pool, the higher the yield percentage returns will be.
Getting into the computation details of returns, the first is the APR, or the annual percentage rate, which does not include compounding consideration. Calculation involves the triplication of periodic interest rates with the number of periods in a year. The annual return rate is charged to borrowers and earned by capital investors. On the other hand, APY, or the annual percentage yield, is the second way of calculating yields. The return rate is imposed on borrowers and rewarded to liquidity providers, not investors, who earn by applying the compounding interest.
Yield farming profitability depends on many factors as you lend your crypto funds into the liquidity pool to yield rewards. The basic thing is that yield farming returns are calculated annually. However, results can be unpredictable due to its dependence on price volatility, the amount of invested capital, applied strategies, and the liquidation risks affecting your collateral. Participants, therefore, are called to put in large funds so as to avoid liquidation threats. Nevertheless, returns are substantial. As Defi protocols are constantly being developed, so will yield farming be a sought-after investment because of high returns.
The complexities surrounding yield farming offer risks in itself, both to lenders and borrowers. The required investment alone could run into thousands of dollars to get some value since the volatility of the crypto market is so high that investments are under constant threat of slippage and loss. There is also the presence of hackers and fraudsters lurking in every crypto corner and ready to jump on vulnerable pending smart contracts waiting in line to be verified. DeFi projects, decentralized as they are, perform on automation without third-party mediation and, therefore, must operate flawlessly. Any application malfunctioning can greatly compromise investor capital and the ecosystem as a whole. The immutability of the blockchain can render investment losses permanent. Anyone interested are urged to take serious research and study before plowing into yield farming to maximize results.
Thanks to DeFi, yield farming might just be the crème-de-la-crème of investment instruments, allowing you to earn passive income through Xion Finance, according to the principles of the money lego system on the Ethereum mainnet and xDAI chain, using XGT, one of the first real cross-chain tokens. Should you decide to take the road towards a rewarding, high-yielding investment, start farming with Xion Finance today.
Start Farming with Xion Finance Today
Xion is a decentralized finance application where you can earn up to 15% compound interest on your DAI cryptocurrency or earn trading fees when farming with xDAI. Both of which will reward you in XGT tokens, however farming will earn you more XGT than earning interest. You can also use your XGT to purchase products from our Xion merchants listed on our Shop page and get up to 100% cashback rewards in XGT from credit card and crypto purchases.
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