Yield Farming vs. DeFi Staking

yield farming vs staking

DeFi Staking vs. Yield Farming

When it comes to decentralized finances, two concepts cross minds. The first one is staking, and the second one is yield farming. Both terms are somehow similar but not the same. After reading this article, you can define the difference between these two ways of investing money in the DeFi world, and also, you are going to be able to choose which one suits you and you prefer more. 

What Is Staking crypto?

As we all know, based on this article, staking crypto is a way of investing tokens in DeFi platforms and earning them back through liquidity pools. It is also known as earning passive income, which means the only thing that an investor should do is to 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 and has been proven very popular lately.

What is Yield Farming crypto?

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

Staking 

One way to farm yields is to stake. Through staking, a stakeholder can generate rewards from a liquidity pool provided by the liquidity provider, the platform in which the smart contract and pools are prepared for investors to sign and stake. This way, stakeholders supply a liquidity pool with the significantly earned tokens from the same pool they have already invested in. In other words, when someone earns benefits from staking crypto, they put rewarded tokens and coins again, and LPs (liquidity providers) choose to reward them in return. In this case, they will earn twice as much.

Crypto loans: lend and borrow cryptos

In this case, investors can loan coins or tokens through Defi and become a lender. The benefit of this way is that the holder can yield farm from the interest of the loaned amount. They lend to borrowers via smart contracts in the DEX system. 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; the exchange rate is constantly increasing. So, when they exchange their tokens, they will be more than the original amount. In other words, they will receive the equivalent number of tokens plus the exchange rate benefit. Crypto loans can be a reward for both lenders and borrowers. So, do the math—easy benefit for all. 

Yield Farming Safety and Risks

As the term speaks for itself, risks in the crypto-currency 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. Discussing the risks and safety of yield farming in detail can be a good idea. 

Volatility

Not only DeFi platforms but also all assets experience volatility. Whether benefit from it or being harmed. Volatility refers to security liability change rates both ways; in a period, a price can rise or fall rapidly and unpredictably. So, it indeed may affect yield farming, too. It is not something for an investor to be scared of but should be alert and put into account. 

Impermanent Loss

As aforementioned, holders deposit tokens in liquidity pools in DeFi staking or yield farming; during volatility, LPs and investors may experience impermanent loss. A liquidity pool is constantly exposed to this risk. It happens when the price of a token in the pool changes. As a result, the value of assets is affected. The price may go both wards; either rise or fall. Again, it is not an issue that LPs are responsible for. 

Rug Bulls

When new projects are aroused, scammer developers try to attract investors to participate in the scam project; before the project is built, they close it without giving them any interest. So, vulnerable investors are left with no money. It is a big fraud that any staking crypto or yield farming user should be aware of. Gladly, CrowdSwap can provide security and safety for investors participating in DeFi projects. If you want to invest money, consider CrowdSwap a reliable and secure platform. We assure you there is no need to worry about this risk. 

Smart Contract Hacks

Since DeFi staking crypto and yield farming are available via smart contracts, they can be critical to holders and hackers. And also, because coding cannot be bugless, the bugs can harm holders’ wallets and be spotted by hackers. CrowdSwap developing team is doing its best to secure investors’ wallets and prepare a safe and sound platform for its users to experience earning money with no worries. 

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, on some levels, they may have similar approaches, such as using DeFi-based platforms, available via smart contract, and earning passive income. Still, they indeed have radical differences in substances. Staking provides a less risky protocol for investors, while yield farming is a riskier way of earning interests.

On the other hand, the benefit amount is usually vice-versa. Farmers experience more benefits rather than stakeholders. 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 for staking CROWD and yield farming. Go through the App to start investing and enjoying opportunities to earn passive and easy income. You can check out our YouTube channel for more information about our opportunities. Enjoy!

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 which details of ways you prefer more. Indeed, CrowdSwap is here to ease your path through earning interest.