Yield Farming vs. DeFi Staking

yield farming vs staking

DeFi Staking vs. Yield Farming

Regarding decentralized finance (DeFi), two concepts cross minds. The first one is staking, and the second one is yield farming. Both terms are somewhat similar but not the same. After reading this article, you can tell the difference between these two ways of investment in the DeFi world. Also, you can choose which one suits your goals more. 

What Is Staking crypto?

Staking crypto is a way of investing tokens in DeFi platforms. It is also known as a way of earning passive income, which means that the only thing an investor should do is put tokens into a staking app, sign a smart contract and then sit back and watch earned benefits transferred into their wallets. Staking crypto is considered a low-risk investment based on decentralized systems. It has been one of the popular ways of investment during bearish markets.

Read more: What is staking crypto?

What is Yield Farming crypto?

Put, yield farming is a process to boost returns in decentralized exchanges (DeX). Crypto users can use a DeFi platform to earn high rewards (yields) from investing tokens. Yield farmers can lend, borrow, and stake tokens or coins to earn boosted rewards in return. Here we are going to discuss each way of yield farming relatively.

Liquidity Mining

One way to farm yields is to participate in liquidity mining projects. Through liquidity mining, the investor can receive rewards from a liquidity pool by acting as the liquidity provider. In such platforms, smart contracts and pools are prepared for investors to sign and start earning. This way, the investors supply a liquidity pool with the significantly earned tokens from the same pool they have already invested in. 

Crypto Loans: Lend and Borrow Cryptos

In this type of investment, users can lend coins or tokens through DeFi platforms and become a lender. The benefit of this method is that the holder can yield farm from the interest of the loaned amount. They lend to borrowers via smart contracts in a DeX.

On the other hand, crypto borrowers can also have a good opportunity in yield farming. Simultaneously, when they hold the loan, they will also earn benefits from the interest rate of tokens. In addition, when a holder using DeFi protocols lends tokens, they exchange tokens with borrowers. Crypto loans can be a reward for both lenders and borrowers. So, do the math—easy benefit for all. 

Yield Farming Safety and Risks

Risks in the cryptocurrency world are inevitable. But can the risks of yield farming be calculated? It is better to divide risks into two parts to answer this question. The crystal-clear part depends on the market and regulations in no one’s control, such as volatility and impermanent loss. The second risk section is what the DeFi platform is responsible for, like rug pulls and smart contract hacks. 

Volatility

Not only DeFi platforms but also all assets experience volatility. Volatility means that a price can rise or fall rapidly and unpredictably. In a given period, volatility in the crypto market is so high (at least at this time) that it may also affect yield farming. It is not something an investor should be scared of, but they should be alert and consider it. 

Impermanent Loss

Impermanent loss occurs when you provide liquidity to a liquidity pool, and the price of your deposited assets changes from what you have deposited them. As mentioned before, holders deposit tokens in liquidity pools. It happens when the price of a token in the pool changes. As a result, the value of assets is affected. During volatility, LPs and investors may experience impermanent loss. The greater the change, the greater the exposure to impermanent loss.

Read more: What is Impermanent Loss?

Rug Bulls

Imagine you have bought a rug for investment and are promised to gain interest after some time. After some time, someone pulls that rug out from under you. Frustrating, right? This is precisely what happens with rug pulls. In this type of fraud, scammers launch a scam project and try to attract investors to participate in it. But before the project is launched, the scammers shut it down and take all the money.

SQUID token rug pull scam
SQUID token rug pull scam

There are instances of such projects in the crypto world, like SQUID. This token was launched during the time of popularity of the Squid Game TV series. It soured by % 110,000 at the peak of its popularity. One day, out of a sudden, the crypto dropped from $2,861.80 to $0.0007926 in a matter of seconds, leaving investors with a handful of worthless assets.

Smart Contract Hacks

Since DeFi staking and yield farming are available via smart contracts, they can be critical to holders. Hackers can also take advantage of loopholes in the smart contract to their own benefit. Because coding cannot be bugless, the bugs can harm holders’ wallets and be spotted by hackers. This can happen with big projects as well, which investors need to consider.

How to Invest in Cryptocurrency?  Staking or Yield Farming

Now that both DeFi staking and yield farming are clarified, it is time to compare them briefly. In the decentralized finance world, these two terms are close but not equivalent. They provide opportunities for investors to benefit from their investments. Also, at some levels, they may have similar approaches, such as using DeFi-based platforms, available via smart contracts, and earning passive income. Still, they indeed have radical differences in substance. Staking provides a less risky protocol for investors, while yield farming is a riskier way of earning interest.

On the other hand, yield farmers can receive more benefits compared to those who stake their assets. But the point is that staking crypto has a long-term approach while yield farming is short-term. To put a quick picture in your mind, take a glimpse at the table below.

DeFi StakingYield Farming
Long-term benefitShort-term benefit
Low-riskAlmost risky
Less benefitBoosted benefit

CrowdSwap yield farming and staking platform

Regarding DeFi, CrowdSwap is an excellent place to be considered safe, secure, and profitable for investors who stake CROWD and participate in yield farming options. These programs are offered on different chains with multiple opportunities. To consult the list of these possibilities, visit the CrowdSwap App. You can also check out our YouTube channel for more information about our opportunities.

Conclusion

To sum up, DeFi staking and yield farming both have pros and cons. To choose one for investing, consider the amount you want to invest and what details of ways you prefer more. There is no definite answer as to which one you opt for because it depends on your investment policies. Different aspects such as risk-taking, time, and the amount you put in are also important things to consider when choosing your preferred way of investment.

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