What Is Yield Farming in Crypto?
Before we dive into exploring the advantages and disadvantages of yield farming, it may be beneficial to begin by defining what it is and how it works.
Yield farmers are basically crypto liquidity providers. Whether you are yield farming Ethereum, Bitcoin, Ripple or any number of altcoins, the principle remains the same. You put your capital at the disposal of a Decentralized Finance (DeFi) application.
The company gains liquidity, using your funds to earn profits, maybe through trading, or loaning out your capital to other clients, and you earn sky-high interest on the crypto that they have borrowed.
DeFi is an open source, blockchain-based financial ecosystem, where you can perform a wide variety of activities, such as exchanging or storing digital assets, loaning and borrowing crypto capital, taking out insurance, trading cryptocurrencies, or executing asset transactions.
DeFi applications, or dapps, are exceptionally versatile, but by far the most in-demand services they provide are lending and borrowing. Dapps have been steadily gaining in visibility and legitimacy, already accounting for more than $5 billion worth of crypto assets and this popularity is due in large part to the yield generation opportunities they offer liquidity providers.
The Benefits of Yield Farming
Yield farming Ethereum-based credit markets are offering new strategies for crypto owners to earn incredibly attractive returns on their cryptocurrency, at least a hundred times higher than a traditional bank would offer. Yield farming also offers higher profits than almost any other traditional investment channel, from real estate to stocks and bonds.
Yield farmers can also turbo-charge their returns with liquidity mining. They receive tokens from the company borrowing their funds, in addition to the high interest on their loan.
The Risks of Yield Farming
Yield farming is not without risks. DeFi applications are open source and can be vulnerable to hacks, as we have seen with unfortunate regularity so far in the first half of 2020.
Then of course, there is the risk of joining DeFi platforms with young, unproven tokens that have a high chance of losing their value, leading the entire dapp ecosystem to crash,
Moreover, when yield farmers borrow and lend in quick succession to maximize the revenue that can be mined from providing liquidity to the platform there is a risk of liquidation. This occurs when there is a drop in the value of the coin they have used as collateral, which can trigger a loss of all the yield farmer’s capital.
The Smart Move
The best approach for crypto investors wishing to take advantage of the exceptional revenue potential of yield farming opportunities is to mitigate risk wherever possible.
At ArbiSmart, we offer crypto arbitrage, which is widely acknowledged to be among the lowest risk forms of investment. Our fully automated platform monitors multiple exchanges 24/7 to find temporary cryptocurrency price discrepancies. It buys the coin at the lowest available price and then automatically sells it at the highest price to make a profit on the spread, before the price disparity resolves itself.
Our platform is a hybrid of DeFi and Centralized Finance (CeFi), meaning that it offers the transparency, accessibility, speed and cost efficiency of DeFi, as well as the extra layers of security guaranteed by a regulated, traditional CeFi system. As opposed to being solely an automated, smart contract-based platform, ArbiSmart has an extra layer of protection provided by a human risk management team that monitors the platform and tracks cryptocurrency market movements 24 hours a day to provide intervention where necessary. In addition we have implemented a series of rigorous data security protocols protecting client funds and safeguarding account integrity, while also ensuring that dedicated support is available across multiple channels around the clock.
The ArbiSmart platform is EU licensed, meaning that we have to adhere to the strictest regulatory standards with tough IT security measures, external auditing, AML/KYC protocols and an insurance fund to cover all client capital in the case of a hack. There is also no danger of liquidation if the value of the account currency falls below a specific threshold.
The token powering the ArbiSmart platform is RBIS. As with other yield farming opportunities, in order to earn a return, once you have made a deposit, your capital is converted into the native token. At ArbiSmart, it is then used by the automated system for crypto arbitrage trading on your behalf. Your RBIS can then be reinvested to earn compound interest or be withdrawn in Bitcoin, Ethereum or Euro at any point. While most DeFi companies offer rates of approximately 10% APY, ArbiSmart passive income returns begin at 10.8% and reach as high as 45% a year.
Not only is ArbiSmart well-established with a great online reputation, but the RBIS token has an excellent track record. In the last eighteen months alone it has risen by 120% generating huge capital gains and by the end of 2021 the token is projected to go up by 3,000%. In large part this is a result of the growing popularity and subsequent increase in platform liquidity. It may also be due to our continued focus on the development of new products.
One such product is the ArbiSmart wallet, which provides those in search of generous liquidity rewards with interest of up to 45% a year. You can increase your interest rate by converting your funds into RBIS and enjoy an even greater yield by placing your funds in a locked savings account, earning a higher return, the longer the closure on the account.
Yield farming provides a great opportunity to quickly earn a huge profit on your cryptocurrency, although the exceptional returns are often accompanied by high risks. The smart move is to mitigate your exposure with a company that offers security, regulatory oversight and a steadily appreciating token, all while generating unmatched returns on your initial investment.
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There are as many ways to trade as there are traders and determining whether a specific investment route is right for you will depend on a wide variety of factors, such as the types of financial assets that best suit your risk tolerance and revenue expectations, as well as your market experience and the amount of time you are willing to spend managing your investments.