Yield Farming is another way of generating passive income with your KGO, and it is one of the main reasons why Decentralized Finance (DeFi) is so popular right now. In this article, you will learn the basics of farming, the advantages and the risks associated to it, as well as where to farm your KGO.
What is Yield Farming?
Yield Farming or Liquidity Mining is another way of getting more money using the KGO you have. It means adding liquidity to a decentralized exchange (DEX) and earning rewards in the form of interest for doing so.
Think of this process as holding fiat in a savings account. The money held on your savings account is used by the bank in its general liquidity pool. The bank then uses that pool for lending and providing money to customers. Farming is basically the same, only you are the one contributing to a lending exchange platform by putting your crypto in one of their pools.
Farming works with users called Liquidity Providers (LP), whose role is to add funds to a liquidity pool. A liquidity pool is a smart contract that contains funds. In return for providing funds in the liquidity pool, the liquidity providers will get a reward, and this reward may be generated from fees generated by the DeFi platform used or it could be from other sources.
Unlike staking, Yield farmers are not bound by any lock-in period. They can contribute their assets for as long as they want and earn fees daily. The more you lend, the higher the rewards are.
Advantages and Risks of Farming
One of the major benefits of yield farming is that it generates incredibly attractive returns on your cryptocurrency. Yield farmers can earn considerably higher interests through yield farming than they would through banks (at least a hundred times higher than a traditional bank would offer) and staking.
Participating in farming does not require specialized equipment and can be easily done on a smartphone or a computer.
Yield farming is not without risks. DeFi applications are open source and can be vulnerable to hacks.
When the market experiences sharp moves, users may lose money. This risk is called impermanent loss and happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss. To put it simply, the loss means less dollar value at the time of withdrawal than at the time of deposit.
(For a more detailed account of impermanent losses, see this article.)
Where Can I Farm My KGO?
SparkDefi – SparkDefi is a decentralized exchange (DEX), which means you can farm directly from a MetaMask wallet. SparkDefi currently offers farming with a 195% APY. The rewards are paid in SparkDefi’s native token, the SRK. All you need is a MetaMask wallet with KGO and BNB on it, as you will need to deposit an equal worth of BNB and KGO in the their liquidity pool (LP). Then connect your MetaMask Wallet to SparkDefi and deposit the equal amount of KGO and BNB you like in their KGO-BNB pool.
(For a step-to-step guide on how to farm KGO on SparkDefi, see this tutorial.)