For fans in the world of cryptocurrencies and the Blockchain, 2020 is surely the hour of DeFi.
Truth be told, the shifted numbers and interest around this subject have blast recently. As demonstrated by some, DeFi is simply the umpteenth air pocket inside a world still in its beginning phases in which FOMO, the promise of outrageous returns, and the use of ghost administration tokens are ousting. As dissected in the previous articles, DeFi is unmistakably a cauldron wherein we discover endless strategies, terms, and projects in the most diverse fields, from DEX to Synthetic assets passing through the Lending Platform and the Asset Management Platform.
In this article, we endeavor to clarify two terms that are again and again confused and used one instead of the other, specifically Liquidity Mining and Yield Farming.
Liquidity Mining
Liquidity mining arises from two significant concepts in the world of cryptocurrencies, liquidity, and mining. By liquidity, we mean the accessibility of coins/tokens in a given stage, essential for the creation, advancement, and expansion of DeFi markets. By mining, of course, we mean the PoW-based methodology in which by causing the computational power accessible you to get new coins just printed by the estimation. These two concepts, but distant from each other, can be consolidated to make a process that has positively favored the blast of some DeFi projects.
A person who wants to do liquidity mining "lends" liquidity to a specific pool (basically on Uniswap) and depending upon the time and the measure of liquidity gave receives new tokens just printed. We should take a manual to clarify possible doubts.
Another stage in the world of DeFi has administration tokens (GOV) that it wants to distribute. To do this, in his white paper or on his welcome page, he describes some Uniswap pools from which these GOV can be overcome liquidity mining.
The person interested in the endeavor and the possibility of getting these GOV must offer liquidity to one of the pools described previously. The user receives consequently the LP (Liquidity Provider Token) that will be needed for the last recuperate.
As long as the tokens given by the user remain in the pool, he earns both 0.3% swap and the administration tokens that are "mined" at each block. At the hour of recouping, the user by restoring the LP receives consequently both the fees and the "developed" GOV.
This process, as you can easily guess, has made a real dash for unbelievable abundance concerning DeFi users. Thanks also to Yield Farming, the possibility of getting "free" tokens by offering liquidity to a pool was an open entryway not to be missed. So what is Yield Farming and how might it use Liquidity Mining?
Yield Farming
Yield Farming may be a process that's positioned above simple liquidity mining and which takes a cycle of an area of its main features to expand user returns. In essence, Yield Farming is that the improvement of one's liquidity between the varied DeFi platforms using various mechanisms like Liquidity Mining, Fund Leverage, and risk decision.
The possibility of Yield Farming was carried into the world with Compound which on June 16 started distributing its Governance tokens to its users. By "advancing" and "purchasing" the Stable coins, users gathered COMPs which were then distributed. After this idea and the explosion in terms of the estimation of the COMP token, any endeavor in the world of DeFi is expected to make their token and distribute it to boost users to go to a specific stage. Subsequently Liquidity Mining and Yield Farming at the same time: the improvement of one's Stable coins to boost the return by winning administration tokens.
Before long, the APYs promised by numerous individuals of these platforms skyrocketed, and finding the highest return for a single person was close to impossible. Thus projects such as yearn.finance, for instance, platforms for the modified administration of funds through the decision of risk to be used for Yield Farming.
