The 2020 summer started with the explosion of new technology in the cryptoverse – DeFi or decentralized finance! No KYC, no financial barrier to enter financial space sparked the next financial revolution. But, it was yield farming and staking that made everything in the space grand.
As a result, the DeFi market that started on a humble note with $1.5 billion in TVL scaled $105 billion in no time. If you happen to have little or no knowledge of yield farming and staking, you are at the right place. In this blog, we will explain both these concepts and their differences. On top of this, you will also get to know about platforms that support them.
What is Yield Farming?
Yield farming may sound more or less like staking but with an upside. On yield farming, you get more tokens on top of the interest. Hence, suppose if you have lent on ETH/DAI liquidity pool. As a liquidity provider, you get interested whenever someone uses tokens from the pool. Along with that, you also get the LP/governance tokens which you can lock somewhere else to get more returns. In a way, yield farming allows liquidity providers to earn liquidity on liquidity. So, despite the token lock, your liquidity still remains in the form of another token. The concept of yield farming originated from the Compound protocol. It was the compound protocol that distributed Comp tokens to liquidity providers.
What is Staking?
Staking is the process of depositing your crypto to confirm transactions. The more transactions you confirm the higher the reward for confirmation. Staking works on blockchains that use the POS or proof of stake consensus mechanism.
Difference between Yield Farming and Staking
Here’s an easy to view table that showcases the difference between Yield Farming and Staking:
|To lock crypto tokens for passive income
|To lock crypto tokens to act as a validator
|Yield farming uses automated market-making (AMM)
|POS or Proof of Stake Consensus Mechanism
|In the form of APYs for token locked
|In the form of native tokens for validating blocks
|Risks in the form of impermanent loss, smart contract bug and composability of blockchains
|Validator risks like staying away from the network. Or, liquidation risks for validating wrongful transactions.
Top Yield Farming Protocols
Users can lock Uniswap’s LP token for liquidity provisioning. In the process, they get exposed to added liquidity on top of the 0.3% fees. There is also added upside given to liquidity providers on Warp Finance. They get WARP tokens which they can lend for extra interest.
Badger DAO is taking yield farming to the next level for Bitcoin. On Badger DAO, liquidity providers earn rebasing tokens called SETT. With SETT getting pegged to BTC, the price of the token has gone off the roof. Those who got SETT as LP tokens are preparing for the moonshots.
Top Staking Protocols
On CoinDCX, you can earn as high as 5% to 20% APY while staking you’re crypto. CoinDCX supports EOS, TRX, NEO, QTUM and XTZ.
Binance is one of the best platforms to choose for staking your crypto. You can earn as high as 105.32% APY on some of the selective tokens. For example, when you stake your AXIE. However, for other tokens, you can get within the range of 5% to 13% APY.
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