DeFi 101: What is Yield Farming?

Yield Farming is a way to maximize passive income from your Crypto assets, through a number of profit optimization features provided by DeFi protocols. .

Similar to traditional finance: If you have an amount of idle money, you can choose to save, lend or invest with the goal that your assets will be increase. In the cryptocurrency, Yield Farming is the general term used for such activities, but the asset is coin or token instead of a fiat currency.

Types of Yield Farming:

  • Liquidity Providing: Users deposit 2 tokens at the same time into the DEX Pool and lock them in a smart contract, in order to maintain the ability to trade for a certain pair of assets. At that time, the liquidity provider will be shared a part of the transaction fee from the DEX and receive LP token that can be staked or farmed at Yield Aggregators to receive rewards.
  • Lending: Users who own idle token can deposit at Lending DeFi protocols such as Aave, Venus to facilitate borrowing for others, thereby receiving interest at a rate.
  • Borrowing: Investors can mortgage their assets to borrow others, then use the borrowed tokens to continue Farming at Yield Aggregator.
  • Staking: Users will receive committed interest according to the Proof-of-Stake mechanism or receive interest based on the number of LP tokens they receive when providing liquidity.

Some popular Yield Farming protocols: Uniswap, PancakeSwap, Aave, Curve Finance, Venus…

Important Terms in Yield Farming

TVL (Total Value Locked): TVL refers to the total value of token deposited by users into the Liquidity Pool or Staking Pool of DeFi Protocol. TVL has a similar meaning to the Asset Under Management (AUM) index in traditional finance. The higher the TVL of a DeFi platform, the more reputable it is.

APR (Annual Percentage Rate): Rate of return calculated by year. For example, the project announced that the APR of the Farming feature is 10%, so when you deposit 100 VND, after 1 year your assets will increase to 110 VND.

APY (Annual Percentage Yield): The rate of return in a year calculated in the form of accumulation, your assets will increase according to the compound interest formula.

In the next update version, RICE Wallet will introduce to users the Invest feature – a completely new feature on RICE Wallet. There, users can participate in Yield Farming which is integrated from Yield Aggregators, with many different way: Staking, Farming, Liquidity Providing…

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