What Is Stablecoin Yield Farming? Everything You Should Know
In the event of avoiding troubles with cryptocurrency investment, stablecoins are considered the best place to start your investment pursuit. Stablecoins are created to take care of the volatile nature of cryptos like Bitcoin. An investment in them assists to forestall a great loss peradventure the crypto market crashes.
What are Stablecoins?
Stablecoins are cryptocurrencies whose value is pegged to a fiat currency, like the US dollar or gold. They are devoid of price fluctuations because their value is in direct connection to a steady external asset.
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Stablecoins And Yielding Farming
Interests can be earned on currencies like USD or EUR in different ways. However, high risk, high reward is largely favored by these currencies over a low risk, low premium investment, and as such vulnerable to some level of danger when left in the bank.
People don’t usually make more money for keeping money in banks, because people probably make about 0.01%-0.50% APR when they do so, even at the expense of increasing the bank’s fortune.
But with yield farming, more money can be made. The market prospect for stablecoins is in the range of 10%-80% APR. So it is safe to affirm that stablecoins always retain their value.
Reason For Stablecoins Yielding Implementation
With yield farming, you can earn huge money with your volatile cryptocurrencies. The only pitfall here is the risk of temporary loss. Nonetheless, the operation of yield farming with stablecoins often has reduced risk.
Let’s reiterate that the value of stablecoins does not fluctuate, hence it plays out with some level of certainty. It could be recalled that stablecoins had a marginal fall of about 0.45% to 3% with a rapid rebound at the time when Bitcoin and other cryptocurrencies had a significant dip in May 2021.
Therefore, the implementation of stablecoins yielding would enable you to avoid huge temporary losses, even while you gain a minimal rate of 10% of your money.
Yield Farming For Beginners
In technical terms, yield farming is the farming of your cryptocurrencies within liquidity pools, where investors offer liquidity. Also known as liquidity providers, liquidity pools have the eligibility of earning a percentage of the fees paid during the trade.
Every liquidity pool is characterized by a specific crypto pair, such as ETH/USDC, ETH/USDT, etc. The funds injected into these liquidity pools are often borrowed or exchanged by other platform users.
Commissions will be paid for every transaction by other users. When this happens, you are eligible to be instead of a liquidity provider, also called a liquidity mining provider.
How Interests Earned On Yield Farming Are Calculated
It is important to have a good understanding of the concepts of APR and APY before having a delve into the yield farming approach. Annualized Percentage Yield (APY) is defined as the economic return in terms of compound interest.
Compound interest is the culmination of deposit, withdrawal, and re-deposit to leverage on increased capital while earning more. It should be noted that it is unprofitable to compound with minor quantities, like Ethereum, where its commission are consuming.
To this end, small platforms prefer the new Binance Smart Chain which has lower fees. The amount of interest is considered the hallmark of yield farming, which is greater than what the regular bank offers.
How To Farm Yield Using Stablecoins
Liquidity and farm returns on pools can be easily provided with the use of stablecoins. Different stablecoins can be found on Ubeswap, but some of the stablecoins would be needed to achieve liquidity with stablecoin pairing. When high APRs are earned on other digital assets, they can be converted into stablecoins and undergo farm yields.
Risks can be significantly reduced when yield farming is being implemented with the use of stablecoins. However, caution must not be thrown to the winds while performing yield farming to ensure your money is kept safe away from the reach of scammer’s software.