Kaizen Advent №5. Passive income: yield farming

3 min readDec 3, 2022

Yield farming, also known as liquidity farming, is a well-known way to earn cryptocurrency. Here’s how it works: investors stake their coins by depositing them into a lending protocol through a decentralized app, or dApp. Other investors can then borrow the coins through the dApp to use for speculation, where they try to profit off of sharp swings they anticipate in the coin’s market price. The borrower pays interest on the loan to the lender, and the investor who staked the coins in the first place receives a portion of that interest.

Sounds complicated? Don't worry, we'll break it down for you. Keep reading to learn more about yield farming and how you can get started.

How is yield farming different from staking?
Yield farming is a relatively new concept in the world of cryptocurrency, so there is still much to learn about it. That being said, there are a few things you should keep in mind before diving into yield farming: 
• Research - As with any investment, it’s important to do your research before getting started. This includes understanding the risks involved as well as learning about different yield Farming strategies. 
• Consider your goals - What are you hoping to achieve by yield farming? Are you looking to generate short-term profits or build long-term wealth? Your answer to this question will determine which strategy is right for you. 
• Start small - Don’t risk more than you can afford to lose. When first starting out, it’s best to invest only a small portion of your overall portfolio in yield farming so that you can learn about the process without putting your entire investment at risk. 
Yield farming is a process of generating profits from holding crypto assets. In the simplest of terms, it is similar to staking, but with some key differences. Yield farming is more complex than staking, but can yield higher returns if managed properly. It is also more risky.
Yield farming is a crucial aspect of the DeFi ecosystem as it supports the foundation of DeFi protocols for enabling exchange and lending services. It is also essential for maintaining the liquidity of crypto assets on different decentralized exchanges or DEXs. Yield farmers could also earn rewards in the form of APY.
How profitable and how risky is yield farming?

Earning depends on many factors such as protocol, initial terms, market situation.Some yield farms offer up to 100% APYs. You can find out the daily yields of key protocols from CoinMarketCap: https://coinmarketcap.com/yield-farming/
The notable risks with yield farming include impermanent loss, smart contract risk, composability risk, and liquidation risk. 
What yield farming platforms are the most popular now?

AQRU. The company, Accru Finance Ltd., offers a user-friendly platform for those who purchase cryptocurrency to earn interest on their investments.

eToro is a popular cryptocurrency exchange that has been regulated by top-tier financial regulators.

Coinbase, With one of the most effective yield farming sites, customers can choose which DeFi protocol they want to employ and earn income.

Crypto.com offers a variety of earning opportunities and three different holding periods to go along with the approximately 50 cryptocurrencies that are accessible for crypto yield farming use.

If you’re looking for a way to earn cryptocurrency without having to contribute capital to a project, yield farming may be just what you’re looking for. Before getting started, it’s important to understand, what risks are involved so that you can make the best decisions for your investment portfolio.

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