Yield in DeFi: how to earn on cryptocurrencies and what to pay attention to

Farming is one of the popular ways to earn income in the DeFi ecosystem. The essence of this method is simple: users lock their cryptocurrencies in various protocols to earn interest or coins as rewards. Instead of keeping their assets idle, crypto investors can move them between platforms to optimize yield.

The main risks that everyone should know about

Before starting farming, it is essential to understand the dangers that accompany it. Here are the most critical of them:

Rug pull — a situation where the project developers disappear along with the invested funds. The price of the coin typically falls catastrophically.

Vulnerabilities of smart contracts can lead to a total loss of funds. Errors in the code, hacks, and other security defects are real threats to your portfolio.

Market volatility significantly affects the value of locked assets and earned rewards. This can lead to both inconsistent losses and serious financial losses.

Regulatory changes can at any moment affect the legality and profitability of farming strategies, creating both financial and legal risks.

Where and how does farming work in DeFi

Farming is carried out on various platforms, including decentralized exchanges, lending services, and other financial protocols based on blockchain. Participants provide liquidity, issue loans, or deposit assets into staking, receiving rewards in the form of interest or coins.

Advantages of Farming Strategy

Despite the risks, this method attracts investors with its advantages. Firstly, it offers the opportunity to generate passive income from cryptocurrencies. Secondly, the potentially high returns in the form of interest and coin bonuses. Thirdly, you maintain full control over your assets without losing ownership rights.

Practical advice for beginners

Farming provides access to alternative financial opportunities outside of the traditional banking system. However, before you start investing, carefully evaluate all risks. Start with small amounts, study the protocols, check their security and reputation. Remember: high returns often mean high risks.