• About
  • Advertise
  • Careers
  • Write for us
  • Contact
  • Terms of service
Thursday, May 26, 2022
The Millennial Source
TMS
Home WORLD

What exactly is crypto farming, again?

byCaleb Moll
October 28, 2021
in WORLD
What's crypto farming

A representation of virtual currency Bitcoin and U.S. One Dollar banknotes are seen in front of a stock graph in this illustration taken January 8, 2021. REUTERS/Dado Ruvic

Share on FacebookShare on TwitterShare on Linkedin
Cryptocurrency farming, or yield farming as it is better known, is an investment strategy that stands to make a lot of money for investors than current forms of traditional investing.

What’s crypto farming?

  • Cryptocurrency farming, or yield farming as it is better known, is an investment strategy that stands to make a lot of money for investors than current forms of traditional investing.
  • It’s a chance for brave investors to win big on a large bet, but is also risky and so the United States Securities and Exchange Commission (SEC) has made statements about whether this new form of investing should be regulated as a security.

So, what does that mean?

  • So, yield farming, also known as yield or liquidity harvesting, involves lending and having your crypto locked up in an account with the hopes that you’ll make more crypto.
  • In short, yield farming basically allows investors, called liquidity providers (LP), to offer up their crypto into a pool of crypto assets. These LPs then get rewarded for lending these accounts their assets with interest or fee payments.
  • It’s kind of how traditional banking works. Think of all that money in a bank. It comes from people who are opening up savings accounts and putting money in their money. They are encouraged to keep their money there by being offered interest payments so that the bank has more capital.
  • This is common practice with standard currency, and people who invest in a similar position with the US dollar can generally earn back, on average, .06% with their savings account annually.
  • While this may not seem like a lot, if you dump US$100,000 into your savings account paying this interest rate, you can earn US$6,000 a year without ever lifting a finger or losing a dime. I.e. you’re earning US$6,000 in passive income.
  • The difference between traditional investing and yield farming, though, is that putting your crypto assets into one of these accounts can yield returns as high as 9% annually. So, your investments could soar in value.

This seems too good to be true. What’s the catch?

  • Well, just like how your crypto investments could soar in value, it could also crash. Like with all things crypto, it isn’t exactly stable.
  • Unlike traditional bank accounts, crypto accounts aren’t insured, and customers can lose their deposits if a firm goes bust, is hacked or otherwise loses its customers’ funds.
  • Due to the unregulated nature of crypto, it’s not completely uncommon for these scenarios to play out.
  • In June, two brothers from South Africa, Raees and Ameer Cajee, vanished alongside US$3.6 billion worth of bitcoin investments after starting a crypto investment platform called Africrypt.
  • The brothers eventually re-appeared through the proxy of lawyers, but to this day, they claim they have nothing to do with the money disappearing, and no legal action has been taken.

What are the SEC’s thoughts on yield farming?

  • The question that regulators are currently raising is whether or not yield farming constitutes a security.
  • In finance, a security is an asset that has value and can be bought, sold or traded against cash. So this can be a stock or a bond. 
  • Here’s the catch: all public sales of securities in the US are regulated by the SEC, and since crypto trading is largely unregulated, you can kind of see why this is a problem.
  • The SEC believes that platforms that offer yield farming should be treated like a security, so should therefore be regulated by the SEC. 
  • Several major US crypto exchanges have tried to offer this lending feature for their users, one of which is Coinbase Global Inc. But, the SEC didn’t exactly respond well and the company got some nasty letters that basically threatened charges.

What are experts saying?

  • While some critics are confident in yield farming, others aren’t sure.
  • Aly Madhavji, a managing partner at Blockchain Founder’s Fund, posted a LinkedIn article back in January where he expressed his concerns regarding investing in crypto controlled by smart contracts. 
  • “Yield farming is controlled by smart contracts that remove the middlemen in traditional finance. Smart contact risk is high because a malicious hacker can explore bugs in the codes,” said Madhavji. “The greatest example of smart contract risk in DeFi happened in August this year when the Yam token price dropped from an all-time high of $167.66 to around $0.97. This drop in the token was caused by a bug that was found on the smart contract.”
  • Madhavji mentioned the various risks involved with yield farming, including liquidation risk and gas fees. Still, he ended his article by saying that it is up to the investor to decide whether the risks were worth taking.
  • “Yield farming is a powerful way of earning profit from DeFi platforms,” says Madhjavji. “Yield farming risk can be managed when an investor is aware of the various risks associated with yield farming.”

What’s next?

  • As of right now, news on yield farming is fringe and speculative at best, much like crypto in general.
  • The SEC hasn’t made any significant moves regarding its stance on yield farming since last month.
  • Still, the group has looked into broadening their perspective on crypto by most recently, allowing trading of an Exchange-traded fund (ETF) for Bitcoin.

You drive the stories at TMS. DM us which headline you want us to explain, or email us.

Like TMS? Subscribe to our free daily newsletter

Related

Tags: Cryptocurrencies
ShareTweetShare

Latest Posts

stablecoin

What you need to know about Terra’s UST crash 

May 12, 2022
Shares tumble

Wall Street shares tumble while Bitcoin value drops amid market uncertainty 

May 10, 2022
Crypto

Coinbase CEO bets that there will be 1 billion crypto users in a decade

May 6, 2022

Asia’s First NFT Index, RHNI, launches in Hong Kong to provide investors with a benchmark of the evolving NFT world

May 3, 2022

Yuga Labs, the creators behind Bored Ape Yacht Club issues an apology after disrupting the entire Ethereum blockchain

May 3, 2022

Some crypto traders are admitting themselves into rehab

April 25, 2022

Investors like Justin Bieber and Gwyneth Paltrow pile into crypto startup Moonpay

April 13, 2022

Hong Kong’s ex-Finance Chief John Tsang joins StashAway; offers NFTs in bid to attract new clients

April 11, 2022

A private island sells in the metaverse for US$398,685

March 24, 2022

SUBSCRIBE TO THE TMS NEWSLETTER

By providing your email, you agree to our Privacy Policy

The Millennial Source Ltd. 2021

No Result
View All Result
  • Your daily briefing
  • About us
  • Explore
    • Startups
    • Climate change
    • Tech giants
    • Crypto
    • The future of work
    • Banking giants
    • Economy
  • Lifestyle
  • TMS archives
  • Write for us
  • Contact
  • Privacy Policy & Terms

© 2022 The Millennial Source Ltd.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In

Add New Playlist

We are using cookies to give you the best experience on our website.

You can find out more about which cookies we are using or switch them off in settings.

string(24) "jsonld single post debug"
The Millennial Source
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.

Strictly Necessary Cookies

Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.

If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.