What is DeFi?
Decentralized Finance started in 2015 and aims to recreate the financial system, 'including' the unbanked, without the need for intermediaries, by implementation of cryptography, blockchain technology and smart contracts. This particularly creates opportunities for the more than 2 billion people who never had the privilege of having access to several financial services such as:
- Lending and Borrowing: Algorithmic Autonomous Interest Rate Protocol Compound (COMP), Aave (AAVE), Yield Farming Protocol Harvest Finance (FARM);
- Insurance: Nexus Mutual (NXM);
- Stable Coins: Tether (USDT), USD Coin (USDC), Dai (DAI);
- Margin Trading: cryptocurrency margin trading platform PrimeXBT, Kraken;
- Liquidity Pool Based Decentralized Exchanges: Uniswap (UNI), Kyber Network (KNC);
- Order Book Based Decentralized Exchanges: Loopring (LRC)and Idex (IDEX);
- Derivatives: Uma (UMA), Mirror Protocol (MIR).
Most of the DeFi projects are built on Ethereum: its advanced programming language Solidity provides all the necessary logic for the DeFi applications within the Defi crypto currency niche sector.
How did DeFi start?
MakerDAO, founded in 2015, allowed users to lock Ethereum and receive interest in the form of DAI, a USD stable coin (1Dai equals $1). Since then, a whole ecosystem has been built to allow people to receive interest. This in comparison to the traditional finance system where they have started to implement negative interest rates on top of a highly inflationary (QE rounds) money supply, which destroys people's purchasing power.
What is yield-farming platform Harvest.finance and what strategy should you choose to earn a decent yield?
What is Yield Farming?
Yield Farming is a strategy to maximise your rate of return by leveraging different DeFi protocols. Hardcore Yield Farmers often develop unique strategies that use multiple DeFi protocols such as: Compound, Curve, Synthetix, Uniswap, Balancer, and Harvest Finance (automatic yield farming protocol). When an optimized profitability strategy demands change, they will swap between protocols or even swap their coins for those that generate a higher yield. This process is called crop-rotation.
In the traditional financial system this is comparable to moving funds between different saving accounts to profit from the highest APY (Annualized Percentage Yield), which is today almost non-existent or 0.1% APY at most.
Part of creating the highest return is the careful weighing of 3 elements:
- Liquidity mining: several Defi token protocols offer additional incentives to their users by distributing tokens for creating extra liquidity in their pools. This comes on top of the farmers already earning yield. Example: Compound users were well compensated for the high cost of borrowing by receiving new minted COMP tokens;
- Leverage: Farmers will deposit certain crypto currencies as collateral to borrow other coins, which are then again collateralized to borrow even more coins, resulting in an increase in the return on their investment;
- Risk: yield farmers take on high risks such as: over-collateralized loans than can be liquidated, smart contract bugs, platform changes, and attacks on liquidity pools.
Harvest Finance Platform.
- The Harvest Finance Decentralized Protocol collectively helps yield farmers find new and lucrative ways to receive optimal financial gains or APY;
- The Harvest Finance Decentralized Protocol was audited by smart contract auditors PeckShield, Haechi Audit, and Certik and received the green light;
- Harvest Finance has a huge community on Discord, Twitter, Medium, Reddit, and Telegram;
- Harvest Finance acts as a single pool and saves farmers the high individual transaction fees, adding more profit;
- Harvest Finance's token FARM had no pre-mine;
- FARM token supply at start was 0, with a projected 4-year token supply of 690,420 FARM;
- FARM token value is guaranteed by a well-know inflation control mechanism called "burning", which destroys existing FARM tokens from the circulating token supply;
- FARM token is listed on several exchanges such as: Uniswap [V2] (FARM/ETH and FARM/USDC), Hoo (FARM/USDC), and 1inch Exchange (FARM/1INCH, FARM/USDC and FARM/ETH).
Harvest Finance risk-free yield farming strategies.
First of all it is strongly recommended to longtime store your crypto wealth in Bitcoin and Ethereum, the two biggest crypto currencies by market capitalization. They will both succeed and go significantly higher as the big money is coming to the sector and will first invest in the large caps. And: "NOT YOUR KEY, NOT YOUR BITCOIN!".
1. As a beginning yield farmer, you can use the FARM tokens you earn on PublishOx and join the $FARM Profit Sharing pool. This strategy is like a savings account but instead of USD or EURO you save FARM tokens.
How to do it? Send your FARM tokens to your wallet (MetaMask), open https://harvest.finance/earn and connect your wallet, deposit your FARM-tokens in the Profit Sharing Pool (left top). Now you will enjoy the strength of compounding interest towards a maximum APY of 188.49%. You can also buy FARM on Uniswap (and other exchanges).
2. If you have a basic knowlegde of how the stock markets work and you assume that the coming QE-rounds will sustain stocks, you might take a look into Mirror Protocol, which offers you the ability to issue and trade synthetic assets that track the price of arbitrary real world assets without physical backing ('without physical backing' means that you don't own the underlying asset!). This category of assets are called derivatives and are commonly traded in America and Europe. Mirror Protocol aims to democratize the industry with blockchain technology:
- People aren't hindered by geographical barriers;
- There are no excessive costs because the middlemen are excluded when using blockchain;
- Poorer people can invest in expensive stocks through fractional ownership;
- The underlying assets become more liquid;
- Transactions are cheaper using blockchain;
- More people can afford a smaller fraction of an expensive stock;
- Together with Harvest Finance the perfect partnership.
For example: Mirror offers you a way to include stocks like Apple, Google, Amazon, and Tesla in your Harvest Finance yield farming strategy.
Unfortunately DeFi comes with some big new risks:
- Example: An AMM (automatic market maker), which replaces traditional finance order books, can leave liquidity providers (YOU) with 'impermanent loss'. Impermanent loss occurs when a liquidity provider has a temporary loss of funds because of volatility in a trading pair. Some will protect themselves against impermanent loss with a set of calls and puts (options). Both Hegic and FinNexus provide you with these choices.
- If applicable, you can consider taking a hedge position to cover your risk.
This is not financial advice.