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What is Yield Farming in Crypto? (Animated + 4 Examples)
One is yield, farming yield farming as a process of putting your crypto currency in the most optimized spot, so that it will earn you even more free crypto yield is a financial term. That means what you get for. Investing and the term farming is used because it represents the possible exponential growth you can receive by finding the right place to invest it. To put this isn't into perspective and help get you excited for this video, most united states, banks can promise around one dollar a year for every one thousand dollars invested, but some big name yield. Farming opportunities are currently advertising three thousand dollars a year for every one thousand dollars invested.
So how do these work is yield farming, a scam before we started this video you might want to grab, have a chair and pull up your pants, because this topic is a fun one. However, it does get quite complicated. Our job here at whiteboard crypto is to make it very understandable, and to do that, you will require some knowledge on topics that we've already explained. We highly suggest that you watch our videos on liquidity, pools in permanent loss and how an automated market maker works before watching this.
They will greatly improve your understanding, but sticking in line with our original slogan. We will try to make the topic of yield farming so simple that your grandpa could understand it. Let's dig in right now, lending and borrowing and crypto currency is very new, and because of this, there are a ton of entrepreneurs and developers working very hard to create the next big bank, but with the help of the blockchain technology.
Some of these opportunities have a crazy amount of money flowing into them and yield farming is essentially figuring out the best place to put your money to see the highest returns. Now there are many different ways to do that and in this video we're going to cover four basic methods, along with a bonus method, number one liquidity providers, so investors can supply coins and tokens to a decentralized exchange and return.
These exchanges take a very small fee of all the trades happening on their platform, and they give that back to the investors. If there are a ton of trades happening and the investor is one of a few other investors, they can earn a very high return on their initial investment. So here's a really quick example.
Let's say you have one thousand dollars to it just so. You supply five hundred dollars of a theory him and five hundred dollars worth of basic attention. Token, into a liquidity pool on uni, swap you can watch our video and you need swap, and you have no idea what that is unique, swap as a decentralized exchange that runs on the theory of network.
So basically, your one thousand dollars means that you now own one percent of that entire pool, because there were some other other investors before you who deposited ninety nine thousand dollars and, along with your investment. In this example, the total of the pool is one hundred thousand dollars the next day around one million dollars gets traded back and forth between the theory, him and basic attention.
Token, on uni swap and you need jobs. Fee is point three percent, so this means three thousand dollars worth of fees were collected during those trades.
Well, you're percentage of those fees is thirty dollars because you own one percent of the pool, and so you earn thirty dollars in one day, based on your initial one thousand dollars, investment, which is a huge return.
The money came from those traders who happily paid that fee, so they could switch back and forth from a theory and the basic attention token using the funds.
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