For the past
few years, Decentralized Finance (DeFi) has been a buzzword in the
cryptocurrency space. DeFi lending platforms and yield farming strategies are
two of the most popular DeFi applications. In this article, we’ll look at what
DeFi lending platforms and yield farming strategies are, how they work, and
what the benefits and risks are.
DeFi lending
platforms are decentralized applications (dApps) that enable individuals to
lend and borrow cryptocurrencies without the use of third-party intermediaries
such as banks. These platforms use smart contracts to automate lending and
borrowing processes and are built on blockchain technology.
DeFi lending
platforms operate by directly connecting lenders and borrowers, with the
lending platform serving as a facilitator. The lender transfers their
cryptocurrency to the lending platform, which then lends it to borrowers.
The borrower
pays interest on the borrowed cryptocurrency, while the lender earns interest
on the cryptocurrency they deposit.
DeFi lending
platforms have a number of advantages over traditional lending platforms. For
starters, they are decentralized, which means they are not governed by a
centralized authority, such as a bank.
This reduces
the risk of censorship while also providing users with greater security and
transparency. Second, because there are no intermediaries, they can offer
higher interest rates than traditional lending platforms. Finally, anyone with
an internet connection, regardless of location or credit score, can access
them.
Aave, Compound,
and MakerDAO are some popular DeFi lending platforms.
What
is yield farming?
Yield farming
is a DeFi strategy in which cryptocurrencies are staked or lent in order to
earn rewards in the form of additional cryptocurrency tokens. To maximize their
rewards, yield farmers typically move their cryptocurrency between different
DeFi protocols.
Yield farming
is accomplished through the use of liquidity pools, which are pools of
cryptocurrencies used to provide liquidity for DeFi applications.
Yield farmers
contribute liquidity to these pools by depositing cryptocurrency, which is then
used by the DeFi app. In exchange, the yield farmer receives a portion of the
application’s fees.
Farmers who
stake their cryptocurrency in governance protocols can also earn rewards. Users
can vote on proposals to change the parameters of a governance protocol, such
as interest rates or reward allocation.
Yield farmers
who stake their…
