Academy Blog Intermediate Topics

What is Staking and Yield Farming?

It is difficult to take no notice of the most attractive DeFi feature —  an opportunity for anyone with internet access to generate passive income.

By putting crypto assets into a financial flow users all over the world are generating annual percentage yields (APY) that are disrupting bank savings returns.

Over the past two years, the number of different ways to multiply crypto funds has strongly increased. Today, DApps are making thconsensuse biggest earning tools supply using yield farming, staking, and lending.

This article is perfect for those who want to dive deeper into DeFi and understand yield farming, liquidity mining and staking. All these operations may look similar but don’t be fooled! They represent different complex algorithms. 

Staking and Yield farming or so-called liquidity mining are special terms for passive income in crypto from a DeFi ecosystem. From the customer point of view, both Staking and Yield Farming are similar to interest savings deposits in a traditional bank.

Unlike bank deposits, stakers and farmers are allowed to place their assets on limitless terms. Users have to decide on their own when to withdraw the assets. It can take from a few days to several months, and the users can claim rewards daily. The more the user places, the higher income gets.

Staking is a worldwide known phenomenon, and there are hundreds of ways for those who want to generate passive income by simply holding crypto assets in a wallet or pool. Staking is responsible for the process of blocks’ creation in a Proof-of-Stake blockchain. In networks with PoS consensus, anyone with a minimum-required balance can proceed with transactions and earn rewards for staking, as well as receive the part of network fees. Staking is similar to crypto mining in terms of achieving mutual consensus while proceeding on-chain operations. 

Yield Farming is not so understandable. Farming is the headstone concept for DeFi from 2020. It is a method of earning cryptocurrencies by temporarily placing liquidity in various currencies to DeFi platforms. When a yield farmer provides liquidity to a DeFi protocol, he earns the rewards in project tokens and the share of commissions which are paid for swapping from the liquidity pool. 

Yield farming is a more complicated process than staking. Staking operates on the PoS chains, where a network’ validators create the blocks, earn rewards and receive a part of the network commissions income. Yield farmers place their funds in pools or vaults to provide liquidity to a specific token in exchange for Yield in tokens of corresponding projects. 

Find us on: Telegram | Twitter | Medium

Similar Posts

Leave a Reply

Your email address will not be published.