With inflation on the rise, recession fears looming, and a stock market entering into bear territory, there’s a lot of worry and concern about the economic security from Main Street to Wall Street.
Concerned investors are withdrawing their money and turning to safer investments like TIPS bonds and other savings options. TIPS are a government-protected inflation bond guaranteed by the US government and mirror the inflation rate. When inflation rises, so does the bond value.
Some savvy investors are looking for decentralized finance options provided by cryptocurrency and NFTs.
But savvy investors are looking beyond mere crypto and NFTs and are turning their attention to DeFi yield farming.
DeFi yield farming allows users to lock their crypto coins for a set period of time and earn rewards for those coins by loaning them out to others in return for a percentage on the loan. In other words, investors that hold crypto don’t invest in the stock market. Instead, they become the stock market.
It’s similar to buying stocks on a margin, which is when an investor buys a stock by borrowing from the broker in order to have more purchasing power.
Or, think about how banks loan money. When a bank or other traditional loan is made, the amount loaned out is paid back with interest. Yield farming operates much the same way that with cryptocurrency, you lend it out with the intent to generate returns.
Some things to consider about DeFi yield farming include:
- Locking your tokens and earning a reward for loaning them out to others
- Earn interest that ranges from a few points to triple-digit earnings
- Can be extremely profitable
- Risks toward values of tokens are associated with locking them
And DeFi yield platforms, often called DeFi liquidity mining platforms, get creative in raising their own capital to have a more considerable “margin” to buy and trade crypto. Recently, Grizzly.fi raised over 26 million through what they call “Community Fair Launch” to service their users better.
DeFi yield farming may be a lucrative way to earn income to combat the uncertainty and fears of challenging economic times.
But like any investment, it isn’t entirely risk-free.
Fluctuating Values and Volatility Potential
When your tokens are locked, if the price of the tokens drops, you may not be able to unlock them in time and may lose a ton of their value. Likewise, if favorable market prices occur and cool off before opening your tokens, you may not be able to benefit from a surge in pricing.
There is the risk that locking in your tokens and the various platforms crash, lowering the value of the particular token. You can lose a majority of your value in minutes. It’s best to diversify and lock some tokens while holding others to be more liquid in case of any market volatility.
Reasons Organizations Would Borrow Tokens
If you’re wondering why you people may need to borrow someone else’s tokens, there are two main reasons. One is the long-term sustainability of another token, and the other reason is to gain a competitive advantage with a particular coin.
Yield farming offers such potential returns because blockchain apps that need long-term sustainable growth will offer other tokens and coins as part of the interest paid. If those additional coins and tokens appreciate, so too does the interest that the lender accrues.
Another reason that someone may come to borrow tokens is to accumulate enough shares of a cryptocurrency to force changes, known as “hard forks,” to influence the opinions of the majority of holders in a cryptocurrency. It’s akin to shareholders voting on critical matters affecting a company’s direction and management.
If you’re in the crypto markets and are looking for alternatives to simply holding your tokens, consider DeFi yield farming to increase the value of your coins and the number of coins you possess.
Owning more tokens that help generate more coins is a strategy that can double or triple your investment over time and is a good hedge against inflation and recession.
By looking at alternatives to traditional investments, you’re better situated to protect against economic downturns and inflation. Of course, as with any investment strategy, some risks are involved, but diversifying your investments to protect your money is a strategy to consider.