We’re happy to announce that we’ll be adding two new features in Q3 2022 that will both enhance the user experience of our platform and allow our users to earn more — crypto farming and staking! Both are integral parts of the new dawn of decentralized finance (DeFi). These features allow people to earn passive income or even turn it into a full-time job.
But what exactly are crypto farming and staking? And more importantly, how do they differ, and why is it important to understand the difference between the two? In this post, we’ll go over some of the key points of these two features and see how they compare and differ. Let’s start with staking.
Staking
To understand this process, we must first briefly mention Proof of Stake (POS). It’s a consensus mechanism during which cryptocurrency transactions are validated. Unline Proof of Work (POW), which uses energy, POS simply uses cryptocurrency. In the most basic sense, POS uses currency to validate blocks in a blockchain.
When you stake a certain amount of cryptocurrency, it will be used for that very purpose while you kick back, relax, and earn steady passive income. There are various types of staking, like liquid staking, when you can still use the amount you invested (usually the amount is locked), or wallet staking, when you select a validator, and you both earn a share almost by the second.
Yield (or liquidity) farming
Crypto farming lets you “grow” your currency from your existing funds. This is done with the help of DeFi — users either lend or borrow currency (or tokens) for profit. Think of banks — they lend loans for an interest fee. The same basic principle applies here. In terms of yield farming, “farmers” measure possible returns by calculating the annual percentage yield (APY).
When an interested person wants to start farming, they’d first have to choose a preferred decentralized app (dApp) and place a certain amount of their own holding into the lending pool. This step closely resembles staking. The deposited amount then becomes one with the whole pool, which is later used by other investors when they anticipate a good return rate. More experienced farmers sow more than one crop, which allows them to increase their return significantly.
Key differences
While both staking and farming work towards the same end goal — providing value and passive income — they’re different in terms of how they work. Staking in a bit more “technical” in the sense that it literally supports the whole blockchains. Farming, on the other hand, is limited to dApp(s) lending pools. This inevitably means that farmers have to do a bit more “hands-on” work, calculating the best result before deciding to either to a certain pool or borrow from it.
Staking also involves the same basic principle of investing your own capital and weighing the risks, but once it’s staked — your job is done. All you have to do is sit back and keep an eye on the crypto market and how it changes.
Another thing to consider is safety and risk management. Staking is considered safer than farming. Both forms of earning passive income involve the unavoidable volatility of the crypto market as a whole. However, when it comes to yield farming, it’s important to do quite a bit of research before going head-on.
Some of the main risks include falling prey to malicious and fraudulent projects with the aim to drain your investment. Or high-risk projects without a clear future — in the worst-case scenario, you might end up finding yourself without your investment due to the project’s crash. However, all things considered, farming can bring a surprising amount of income with the proper knowledge, preparation, and time.
Closing thoughts
As with everything revolving around money, particularly when we talk about the crypto world, it’s kind of a wild west situation. It’s yet to be properly regulated and legislated. Therefore the risks and market volatility go hand in hand in every step of the way.
But the potential is simply too great and too exciting for us to ignore. More and more people are turning their heads to the crypto world for its many benefits. Whether it’s to become more independent, have more than one source of income, develop new technologies, improve existing ones… and so on.
That’s exactly why we strive to work hard and develop a platform that is trustworthy, user-friendly, and user-orientated. Solanax aims to show what it truly means to be a DEX provider, and with the introduction of crypto staking and farming, we hope to give our users the necessary tools to achieve new goals and open new doors. We’ll be coming back with some more information soon, so stay tuned!
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Sources:
https://www.blockchain-council.org/defi/staking-vs-yield-farming-vs-liquidity-mining/
https://blockworks.co/what-is-yield-farming-what-you-need-to-know/
https://www.investopedia.com/tech/how-does-bitcoin-mining-work/
https://www.investopedia.com/tech/how-does-bitcoin-mining-work/
https://learn.bybit.com/investing/yield-farming-vs-staking/
https://www.coinbase.com/learn/crypto-basics/what-is-staking
https://www.cnbctv18.com/cryptocurrency/yield-farming-in-defi-all-you-need-to-know-12011392.htm
https://www.businessinsider.com/personal-finance/yield-farming
