Yield farming is the process in which the users of DeFi-protocols gain additional profit (typically in the form of governance tokens) for offering or getting loans and supplying liquidity to decentralized exchanges (DEX).
Let me introduce you to certain terms in DeFi Yield farming.
Liquidity:
The conversion of assets into cash is referred to as liquidity. When assets are purchased or sold in the crypto world, the market becomes competitive.
Liquidity Pool:
Liquidity pools are groups of tokens or assets that offer larger returns to users than money markets. They are smart contracts that transport or lock up assets in order to enable trade by providing a large amount of liquidity. These pools assist numerous platforms by providing essential liquidity in a variety of coins. Liquidity providers are required for liquidity pools to function properly.
Liquidity Pool Providers
Liquidity providers are users who put their money on the "line makers" or invest their assets in a pool of money. They're also called "market makers" since they supply the goods and services buyers and sellers need to trade. The assets in liquidity pools are lent via a smart contract, an open agreement between the buyer and the seller stored on the Decentralized Finance blockchain platform. Without liquidity suppliers, yield farming is impossible.
How does a DeFi yield Farming work?
It is the second most important factor in the world the people are talking about.
The procedure is pretty straightforward. In a conventional crypto acquisition, the investor pays a certain amount of money for a cryptocurrency or digital asset in the hopes of gaining from its rise in value. However, the concept is different in the case of yield farming.
These "yield farmers," are acting like mini-banks or money lenders to the platform. Instead of the investor buying more cryptocurrencies, they lend the crypto tokens or coins that they already have for a chance to earn a higher profit in the form of interest from their growth.
Hence get the assistance of blockchain development companies to go ahead with the DeFi yield farming platform. They provide some DeFi Yield farming techniques that help you to grow higher.