The yield from traditional investment plans are drying up. Investors are now willing to risk investing in speculative assets for the high yield. They are willing to forego the protection of low yielding assets to make high profits.
Decentralized Finance (DeFi) provides opportunities for making more yield. Attractive yields are the key to attracting capital. In simple terms DeFi is about Borrowing and lending using blockchain applications. The interest rate on the capital deposited varies based on the yield strategies.
Yield Farming is the back bone of decentralized finance. Increasing numbers of crypto users are putting a lot of value to work in DeFi applications. Several Yield Generation Tokens are now getting introduced in the Ethereum ecosystem.
Governance tokens are one way to make it possible for users to vote on the future of the decentralized protocols, but it is also a method to provide for new ways for the DeFi founders to persuade staking of assets in their platform.
Yield farming started with Compound, when it started to distribute its governance token, COMP. And, it all took off from there, where the clever strategy was to put cryptocurrency temporarily with some start up application to help the owner make more crypto. Defi is catching up as a clever investment strategy to make more money. Liquidity mining is yet another terminology for DeFi or Yield Farming.
Ethereum (ETH) DeFi
Stablecoins are making Defi very accessible in the emerging cryptocurrency markets. Ethereum has made it possible to make digital money highly programmable. This in turn has made it possible to enable distributed users to execute the code in the form of smart contracts.
Ethereum, thus made it possible for several aspects of traditional finance to happen on open networks, with on and off ramps providing for greater interoperability with fiat currencies, other cryptocurrencies, and traditional assets. Thus, taking crypto as being an asset type suitable for more than speculation and storage of value.
In just about 3 years ago, there was nothing called DeFi, but Ethereum got it to boom. Bought his whole new concept in to existence. Something that was a budding excitement became a craze among investors. The DeFi crazy shook the whole cryptocurrency ecosystem like a storm.
Ethereum rendered composability to Defi. In Traditional banking it is easy to have a bank account, a financial savings account, and another account to bring in equities, bonds, or derivatives, but when it comes to the process of making them work together or moving value between them it is hard and clunky.
The good thing about Defi is that it makes moving value easy, which strategically timing improved profits.
Credit: Source link