Check out the whale strategies in DeFi, such as yield farming, liquidity pools, and more

DeFi is an emerging sector that has grown over the past few years. People and firms are always ready to join new and emerging fair finance solutions. On the other hand, alongside the idea of universal financial access, cryptocurrencies lead to the simplification of digital asset management and transaction handling. Both phenomena co-occur.

When people talk about DeFi trading, the first things that come to mind are “staking,” “yield farming,” and “liquidity mining.” All of these are popular DeFi solutions, but in each case, you pledge your crypto assets in different ways in the decentralized protocols or applications.

Another difference between the three approaches is in the technologies behind them. Below, you can read more about DeFi’s three main approaches to making money from your crypto assets, yield farming, and the other two approaches to see if there are any differences between them.

All three of these DeFi trading strategies require participants to pledge their assets to support a decentralized protocol and app. However, the fundamentals behind each channel have always been different.

Yield Farming

Yield farming is one of the most popular ways to make money from crypto assets in the DeFi space. Putting crypto in a liquidity pool is one passive way to make money. The centralized finance equivalent of these liquidity pools is the place where you hold your money. Your bank will lend it to others and pay you a percentage of the interest earned.

An intelligent contract-based liquidity pool, such as an ETH/USDT liquidity pool, is a form of yield farming. Investors lock their crypto assets in the pool, and users using the same protocol will now be able to access the assets they were previously locked out of.

Unlike “software/financial technology-only” communications that are characterized by the existence of layer one protocols that provide exchange and lending services, DeFi yield farmers are built directly on layer one protocols. This means that regardless of the performance of traditional markets, there will still be actual crypto assets circulated in DEX, which may give them more control and support. Yield farming rewards APY as a token of recognition from pools and the lending platform. And you can use them to trade for margin capital.

Staking

In the crypto economy, staking is the process of using your crypto assets as collateral for a blockchain network using the Proof of Stake consensus mechanism. Staking is used to validate transactions on a Proof-of-Work (PoW) blockchain network.

In the same way that mining facilitates consensus in Proof of Work (PoW) blockchains, staking is a practical method of achieving consensus on a PoS blockchain.

Proof of Work is favored due to its energy efficiency and scalability to such an extent that it could be considered relative to staking. As a result, they get privileges and also become beneficiaries as well. A stakeholder with a higher position in the proof of stake system their coin holdings increases the likelihood of the block being produced. As a result, the blockchain will give them higher rewards proportionally to the number of their however many stakes they hold.

Staking is more convenient than mining because miners don’t need expensive equipment to create their computing power. For passive investments such as yield farming, the risk factor for staking is the same as the safety of the staked tokens.

Liquidity Mining

There is only one DeFi project dedicated to liquidity mining. The primary purpose of this project is to make liquidity available to DeFi protocols. Through this investment method, participants put their crypto assets, such as ETH/USD trading pairs, into the liquidity pool used by DeFi protocols to trade crypto (not for lending or borrowing). The liquidity provider token (LP) they receive in exchange for their trading pair is then used as the final redemption token.

As long as a user’s tokens are in a liquidity pool, they receive native tokens (also known as governance tokens (GOV)) that are mined in each block on top of the LP they have already earned. They get a reward percentage based on their part of the pool’s liquidity. These newly generated tokens not only provide liquidity miners with access to project leadership but they can also be exchanged for higher rewards or other cryptocurrencies.

In the end, liquidity mining and yield farming are two sides of the same coin. But staking is as accurate, too. Likewise, as the saying goes, the backbone of the cryptocurrency movement is decentralization. While there may be more actions you can take with your cryptocurrencies, such as the ones detailed above, it is ultimately up to your which way you want to use them. Liquidity mining in the crypto world stands for stability. In the end, all the yield farming is about how you can get the most return from your farming. Staking means threading the line of practically applying blockchain security. Thus, whether using cryptocurrency for daily transactions or just as a long-term investment, make sure that you are well-informed and have adequate knowledge about the systems.