Can you make revenue in yield farming as a liquidity provider?
Asked a year ago
I've been looking at investing my crypto coins a DEX and I was looking at liquidity pools and what provides liquidity. It seems like the more people who stake their assets in the pool, the more liquidity there will be. Although, how would one profit from such an endeavour?
Sunday, August 21, 2022
Yes, you can make revenue in yield farming as a liquidity provider. Yield farming allows liquidity providers to generate revenue by locking their crypto holdings in a dApp, such as a decentralized exchange (DEX). Yield farmers use the applications to lend, borrow or stake tokens to generate interest. The process is automated with smart contracts, eliminating counter-party risks prevalent in custodial staking.
The expected revenue is normally annualized, and the potential returns are calculated throughout the year. Remember, if a certain farm is too successful, more farmers will flock in, and the yields will decline.
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