If you’re paying attention to developments in the cryptocurrency space, you’ve probably heard of them by now Decentralized Funding (DeFi) and the income farming trend that has helped lock in more than $ 9 billion worth of crypto assets into DeFi.
In total, Crop farming – Also known as liquidity mining – Users generate rewards with their cryptocurrency holdings by interacting with DeFi protocols that allow them to borrow or borrow tokens. These interactions grant them tokens of governance of the protocols that give them both a share (or participation) in the protocol and more income.
The trend started with the loan log Compound started distributing its government token COMP. Soon after, other protocols released their own government tokens and distributed them in the same way. Now Protocols like Yearn.finance act as smart savings accounts that allow users to get the best returns in the entire DeFi space and reward them with YFI tokens..
The attraction of DeFi
Since Compound launched its government token, the total value locked in the DeFi area has increasedwhen users began to turn to high-yield farming as quickly as possible. When the rewards are generated through the distribution of the tokens, the annual percentage of the return can often exceed 1,000%.
With a 10 year return on government bonds of 0.6% and a 12 month return of 0.09%, 1,000% is an extremely attractive proposition. Users can borrow stable coins according to DeFi protocols, so the risks seem close to zero: if the tokens they have in income farming lose value, they will continue to be rewarded for borrowing fundsand those rewards are well above 0.67% on most platforms.
However, There are hidden risks associated with DeFi and high-yield farming. Popular DeFi protocols are developed by small teams with limited resources, which can increase the risk of smart contract errors and security breaches. Even known verified logs have been hacked.
Furthermore, Fraudsters are taking advantage of every opportunity offered in cryptocurrencies, and several cases of exit fraud and totally fraudulent projects have been reported at DeFi. While there are great money making opportunities in this area, there are also hidden dangers that investors should beware of.
How can centralized funding help?
As we saw before When investing in the DeFi space, it is always better to focus on diversification than short-term gains. A DeFi portfolio should be exposed to major cryptocurrencies in space to ensure that you don’t lose it all to fraud, unexpected market moves, or technical issues and invest in potential gems while it’s still too early.
Diversification ensures a sustainable approach to learning about the wonders of DeFiThis is to make sure that you don’t lose all of your money to mistake or human error.
True decentralization is seen as a strength of cryptography and we can use decentralization to our advantage by investing in DeFi and income farming. There is no doubt that The best returns are obtained from the protocols used to distribute tokens. However, using these tokens is also very risky.
So, A novel investment approach would be to allocate part of your funds for harvest to a central exchange. It’s safer and more stable, although the rewards won’t be that big. For bigger rewards, using a Web 3.0 compatible wallet and testing new protocols is the way to go.. Every farmer should take a different approach, just as every investor diversifies their portfolio between stocks, commodities and bonds.
This article does not contain any investment recommendations or recommendations. Every investment and trading step is associated with risks. Readers should do their own research in making their decision.
The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Jay hao is a technology veteran and a seasoned industry leader. Prior to OKEx, he focused on blockchain applications for live video streaming and mobile gaming. Before entering the blockchain industry, he had 21 years of solid experience in the semiconductor industry. He is also a recognized leader with a successful track record in product management. As the CEO of OKEx and a strong believer in blockchain technology, Jay believes that the technology will remove barriers to transactions, increase efficiency, and ultimately have a significant impact on the global economy.
Don’t stop reading: