The advent of blockchain technology and virtual currencies has irrevocably altered the global monetary system as we know it. The low transaction costs and lack of geographical restrictions made possible by digital assets make them a compelling alternative to conventional banking and asset exchanges.
In contrast, DeFi (Decentralized Finance) has taken crypto to a new level, vastly increasing the digital asset's potential and utility. Long-term crypto investors are known to HODL (Hold On for Dear Life) their tokens, a pun on the word "hold" that refers to keeping tokens in a wallet and never selling them in the hope of a price increase.
Given the crypto market's long-term performance, this has undoubtedly proven to be an effective strategy to grow your investment over time. However, due to its limitations, investors have been looking for alternatives to this straightforward approach. That's where yield farming, a novel and lucrative approach to passive income in cryptocurrency, was born, thanks to DeFi.
HODLing
The term "HODLing" has been widely adopted and has become a potent rallying cry in the crypto market, spread by everyone from well-known influencers to the average investor. This phrase aims to convince holders of tokens to hold onto their entire holdings through both ups and downs in the market.
The strategy has proven successful for those who have held cryptocurrencies for an extended period. Since Bitcoin's inception in 2009, many new and exciting tokens have emerged, with many experiencing massive price increases from their introductory levels (in the thousands or even millions of per cent). It's interesting to note that there have been roughly 3971 good days in Bitcoin's history, which means that there's approximately a 95% chance that buying Bitcoin would be profitable regardless of when you purchased it.
Those who have been able to ride out the storms of token price volatility and hold on to their tokens have undoubtedly reaped the benefits, and they have done so without the stress and hassle of day trading or constant monitoring of their portfolios.
Yield-Farming
Regarding high returns and passive income, yield farming is the newest and most popular trend in the DeFi market. What is it, and how does it function, exactly?
To put it simply, yield farming is actively managing passive income, with farmers taking on varying degrees of risk and exposure to increase their yields. To maximise returns, investors can use leverage and access to capital, transfer funds across various DeFi protocols, and participate in liquidity provision and mining activities.
Due mainly to this practice, the DeFi industry has recently experienced a surge in adoption, with hordes of new users flocking to these protocols in the hope of depositing tokens and earning astronomical returns.
Most decentralised exchanges (DEXs) and protocols today use the Ethereum blockchain, which means that most farming opportunities are for ERC-20 tokens. Nonetheless, other blockchains have put protocols and mechanisms in place to offer these opportunities to investors. Many investors have found that farming stablecoins like USDC and USDT (Tether) are the best option regarding yield-farming. For one, there is no risk of price fluctuation; second, they perform almost identically to a high APY (Annual Percentage Yield) savings account.
Stablecoin farming could be the way to go if you're not willing to take on as much risk and don't want to hold volatile crypto assets.
Isn't It Clear to You Which Option Serves Your Needs Most Effectively?
Although there is much potential in the DeFi industry, there are also some significant threats. Due to the limited availability of reliable platforms offering robust security and insurance, cyberattacks remain a severe risk to careless online users.
Holding onto your tokens may be the best option if you prefer keeping things straightforward and are committed to using secure storage methods like insured platforms or offline "cold storage" hardware wallets. The only thing HODLing guarantees you is your current portfolio value's gain (or loss), so keep that in mind. In the end, the real inherent risk is keeping your tokens on a CEX (centralised exchange), where there is regulatory risk, and the exchange can freeze your funds at will.
To lessen the impact of this threat, it is prudent to spread your assets across various storage mediums, such as hardware wallets, while keeping the bulk of your wealth in reputable organisations.
We suggest that those hungry for more investigate the potential of yield farming. Investing in this manner opens up your portfolio to historical highs in yields and returns. Users can break free from the constraints imposed by conventional banking, giving them the power to control their financial destiny and effectively neutralise the effects of inflation.
Therefore, you can earn passive income while retaining exposure to the cryptocurrency you wish to HODL. Whether the value of your investments rises or falls, you can always count on interest payments to add to your savings.
It doesn't matter which path you take; in the end, you'll be exposed to the burgeoning cryptocurrency market. It's a fascinating frontier, full of cutting-edge financial and banking technology.
Final Words
A reliable DeFi yield farming development company simplifies the decision between holding coins for their long-term value or trading them for a steady income stream. We answer that you needn't pick: you can carry the convenience of both options simultaneously.
When you sign up for a High Yield Account, you'll have instant access to some of the best returns on the market, thanks to our thorough analysis of various DeFi protocols and their corresponding interest rates.
