If you have been continuously navigating through the new crypto trends and buzzwords, you must have come across the term "Yield Farming".

It's basically a reward scheme that would taken DeFi (Decentralized Finance) world by storm amid 2020.

As with most things related to cryptocurrency and blockchain, the concept of yield farming has been a matter of discussion since its advent last year.

So what is yield farming? Without further ado, let's dive into the concept of Yield farming.

Yield Farming Explained

Yield Farming is a way to get the highest return possible from cryptocurrency.

It involves earning interest by locking up your crypto or digital assets in a liquidity pool. Some decentralized finance protocols even issue governance tokens in the form of reward for participants.

Individuals who participate in liquidity pools calculate their returns using the APY (Annual Percentage Yield) metric. Investors usually change between different DeFi protocols in order to get the best deal possible.

Is Yield Farming Safe?

The yield farming practice ballooned in popularity in the summers of 2020 when the TVL (Total Value Locked) in DeFi protocols surged.

Curve, Balancer, Aave and Compound are some of the most popular projects involved in yield farming at the time. Today, different projects are getting involved in the scheme every day. But yes, all of this involves certain risks too.

Decentralized Finance protocols can be prone to certain smart contract bugs, meaning that our funds may be left vulnerable in the liquidity pools.

Owing to its possible vulnerabilities in the smart contract protocol, yield farming is susceptible to hacks. Such coding bugs can occur due to increasing competition between protocols, where new contracts and features are audited.

It is for this reason, it is crucial to do your due diligence before getting involved in yield farming.

Grow Your Wealth with Yield Farming After Budget 2021

Questions have been circulating around that what will yield farming be like after Budget 2021. How profitable is yield farming going to be after the budget?

Well, the government don't seem to be in favour of cryptocurrency. Still, there are ways to make profits through yield farming after budget 2021.

In yield farming, the very first step involves adding funds to a liquidity pool. The pools are essentially smart contracts containing funds. They power a marketplace where users can lend, borrow or exchange tokens. You official become a liquidity provider as soon as you add funds to a pool.

You will be rewarded with fees underlying DeFi platform for locking up your funds in the pool.

Reward tokens can themselves be deposited in liquidity pools, and it is common practice for individuals to shift their funds between protocols in search of higher yields.

Yield farming may be a complex scheme for beginners. But it's really a win-win for those experienced with the Ethereum network as well as its technicalities. They move their funds around to different platforms so they can accrue the best returns.

The Future of Yield Farming

For all the intents and purposes, nobody can predict the future with much accuracy in such a volatile space. However, we can not deny the fact that this DeFi scheme has shaken the internet since it was first rolled out.

It's been a year since it was introduced first, and people can be seen taking an interest in yield farming as a more profitable option.

With over a million active users within the ecosystem, it's nearly impossible to see what exactly the future holds for yield farming. Only the future can tell what it really worth.

Till then, you can keep trying your hand to buy cryptocurrency in India. Also, do not forget to keep track of cryptocurrency price prediction 2021.

Author's Bio: 

I am a Crypto enthusiast and a blogger by passion. I am writing now about blockchain and cryptocurrencies trends, sometimes covering importance of bitcoin for various other industries.