In the world of decentralized finance (DeFi), two popular methods for earning passive income are yield farming and staking. Both offer unique opportunities and risks, making them compelling options for investors looking to maximize their digital asset holdings.
Yield Farming:
Yield farming, at its core, involves providing liquidity to a DeFi protocol in exchange for rewards. It’s akin to being a stakeholder in a bank, where your deposited funds are used for various financial activities, and you receive a portion of the profits in return. Yield farmers deposit cryptocurrencies into liquidity pools, which are essentially smart contracts containing funds. In return, they receive liquidity provider (LP) tokens, which can then be used in various ways to earn additional rewards.
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Staking:
Staking, on the other hand, is the process of actively participating in transaction validation (similar to mining) on a proof-of-stake (PoS) blockchain. By locking up their tokens, stakers help maintain the network's security and efficiency. As a reward, they receive a portion of the transaction fees or newly minted tokens. This process is less resource-intensive compared to traditional mining and offers a more predictable income stream.
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Yield Farming vs. Staking
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Some Yield Farming PLatforms:
Some Staking Platforms:
- Ethereum 2.0
- Tezos
- Polkadot
For more: Yield Farming vs Staking: Which is More Profitable?
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