Since Compound launched liquidity mining in June, billions of dollars in tokens have been distributed to liquidity providers across various DeFi protocols.
Simply put, yield farming offers investors a novel method for acquiring tokens.
A how to + best practices below.
1/
Unlike ICOs, where investors exchange capital in return for new tokens, yield farming allows investors to acquire tokens by supplying a protocol with capital.
That capital is then put towards a productive use such as lending or liquidity provisioning.
messari.io/article/how-to…
Yield farmers are free to withdraw their capital whenever they choose.
They only pay an opportunity cost for having their capital locked into the protocol.
In this regard, investors are able to acquire new tokens effectively for free. (more on the risks later).
Farming comes in all shapes and sizes, but one of the most simple examples of how farming works is Swerve - a new Curve fork.
Swerve offers the opportunity to farm SWRV tokens with stablecoins, allowing farmers to avoid the price risk from farming with volatile cryptoassets.
The high level process is simple.
Deposit your stablecoins into Swerve to receive SWUSD LP tokens (a receipt for depositing your stablecoins), then stake these tokens in a special Swerve contract (called the liquidity gauge) to earn , Swerve’s governance token.
Swerve currently offers a 338.72% APY for this activity.
If that all sounds like gibberish, check out our new "how-to" guide where we explain each of these steps in detail.
Furthermore, we provide a detailed look at the risks and opportunities when farming.
The goal is to get the best risk adjusted ROI.
messari.io/article/how-to…
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