Cryptocurrencies are still a relatively new investment option, but that hasn’t stopped people from looking for ways to make money off of them. While some people are content to simply hold onto their cryptocurrencies, others are looking for ways to get returns on their crypto assets. There are a number of ways to do this, and compound farming is one of them.
Compounding is the increase in the value of an investment over time as a result of adding additional investment amounts to it. The essence of compounding is to supercharge your returns on any investment. You simply reinvest your interest; this way your initial principal of investment will grow, and will boost your returns exponentially with time. In yield farming, this is also very similar. Instead of holding on to your yields as a farmer, you can convert them into more liquidity pool tokens, thereby increasing liquidity pool position and the yields you earn from it.
Calculating your rewards on compound yield farming is a little different from regular yield farming. In compound yield farming, APY is used to represent the annual return.
APY stands for Annual Percentage Yield, and it’s a figure that indicates how much interest you can earn on your investment over a given period of time. In the world of cryptocurrency, APY is a common metric to compare different options. For example, if you have $1,000 worth of bitcoin deposited with an online wallet provider that offers an APY of 5%, you would earn $50 in interest per year. If you had the same amount invested with another provider that offered 2% APY, your earnings would be $40 annually. While the difference may not seem like much at first glance, over time those small differences add up.
The major advantage of compound yield farming is the potential ability of the strategy to increase your overall stake and potential earnings. Other reasons why people compound their investment are;
- It is very gradual, which makes it a safe investment option for those who are nervous about short-term fluctuations.
- It is a great way to make your crypto assets work harder for you.
- It accumulates over time.
Compound yield farming offers plenty of benefits, but it comes with considerable risks. Decentralized exchanges are blockchain-based applications using open source code, so they are generally permissionless and open to everyone. In the same way, anyone can create a token pool. Unfortunately, this means that while there are many legitimate projects run by authentic teams, there is also a risk of experiencing fraud.
You can make a crypto portfolio based on compound yield farming by reaching out to firms such as Reliq Holdings
Yield farming isn’t simply a lucrative way to make financial returns on cryptocurrencies; it’s also an enjoyable chance to engage with a vibrant and growth segment that is bound to revolutionize the future of finance. However, the volatility of the market makes it difficult to predict future returns. Therefore, users should be cautious when making investments in this sector.