Published
1 year ago on
June 02, 2022
May has been a brutal month for cryptocurrency and markets across the board. It has left many investors searching for ways to fortify their portfolios and boost their yields. Decentralised Finance (DeFi) has opened the door to many processes of yield generation for the average investor previously only available to financial institutions.
What is Yield Farming?
In simple terms yield farming is the process of utilising assets to generate a return. Three of the most simple involve staking, lending, and liquidity providing.
Staking is available on any network that utilises the Proof of Stake (PoS) consensus mechanism and the participant locks their assets in order to support the network and process transactions. Rewards come in the form of the native token of the blockchain and it is a payment for helping maintain the security of the network.
Lending is an incredibly popular way to earn within DeFi. Aave, Maker, Curve Finance. All are DeFi protocols that bridge people who want to earn revenue on their assets and people who want to borrow funds to partake in economic activity. Broadly lenders and borrowers. Users deposit their chosen crypto asset and revenue is interest paid by the borrowers.
Liquidity providing is one of the most popular ways to generate yield in DeFi. With the rising popularity of Decentralised Exchanges (DEXs) that use Automated Market Maker (AMM), liquidity providing has become essential to the functioning of DeFi. Participants earn part of every transaction fee each time there is a swap of their chosen pair.
PancakeSwap (CAKE)
PancakeSwap is one of the most popular DEXs within the DeFi sphere operating on the Binance Smart Chain (BSC) and offers some of the best yield farming opportunities. Cake - BNB is the second most popular pair and currently offers 30.65% APR. CAKE is the native token of PancakeSwap and is primarily used to incentivise liquidity provision on the DEX. Users who create an LP token (Liquidity Provider token), pair 50% CAKE and 50% BNB and stake it, then earn part of every transaction for the CAKE token. Rewards are paid in CAKE and PancakeSwap offers users the opportunity to single stake their CAKE with an optional lock-up to generate even more yield.
