Decentralized finance (DeFi) applications are a hot topic, and yield farming represents one way to make it profitable, but it is important to understand the implications of these activities.
Creating a truly open source financial infrastructure and payment system, the goal and aspiration of many blockchain and crypto proponents, is undergoing a revival as DeFi applications increase in popularity. Open source lending and financing options create opportunities for new, non-incumbent, and decentralized organizations, but that in and of itself is not sufficient. One of the other components required to create and sustain a decentralized and distributed financial system is the ability for individuals and institutions to finance themselves.
This is where yield farming comes into play.
There are any number of terms and ideas being discussed, and while yield farming might sound like a bit of an odd label, it does communicate the concept quite well. Liquidity mining is also a term that is used in conversation. In essence, what yield farming allows crypto holders and investors to do is to make money on money; a requirement of any mature and liquid capital system.
Let’s break down some of the basics of yield farming, and some of the implications this trend has for financial professionals.
All yield farming is not the same. There