DeFi Yield Farming Explanation

Yield farming (or liquidity mining)  brand new technology made possible by DeFi. It can help in motivating the liquidity needed for projects or launching a fair allocation of a new token and establishing an active and sustainable community. Yield farming rewards reward those who supply liquidity, or in other ways aid in the development of an uncentralized protocol.

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Main Goals of Yield Farming

Yield Farming is usually carried out with two main goals in the back of your mind:

• Incentivize users to deposit and secure their funds through a DeFi application increasing total value Locked (TVL) as well as bootstrapping the demand part of the system. The more liquidity available reduces the chance of user slippage and promotes expansion on the demand aspect of the ecosystem through offering a superior service to other competitors.
• Fairly give equally the DeFi the governance certificate of an application to protocols users who accept the risk of making deposits elsewhere (e.g. impermanent loss). Fair distribution of tokens permits an uncentralized system of governance starting beginning from the first day since no portion of the supply is reserved for exclusive organizations.

 Farming  proven to be a successful method of launching an DeFi ecosystem by fostering an effect of network by bootstrapping liquidity from supply-side for projects, and creating the community of stakeholders, mostly comprised of people who use the protocol. Yield farming incentive programs are available in a variety of forms, depending on the specific goals of each project. However, they usually require leveraging existing infrastructure to create distinct reward systems which are most effective in achieving the intended goal. DApp developers have a substantial amount of creative flexibility over the distinct protocols they’d like to incorporate in their mining of liquidity to create a thriving ecosystem an incredibly aligned community of stakeholders.

Benefits to users

Yield Farming is a reward for users offering liquidity, or providing other value-added services to the open-source application’s network. Yield Farmers are compensated proportionally in the indigenous governance token of the application. This gives the user a better annual percentage yield (APY) on their allocated liquidity. Yield farming rewards are added to any inherent revenue streams that are built into the platform for example, trading fees in an exchange that is decentralized and/or interest earned from lending in the market for money. Certain projects also offer yield farming benefits for other functions, like participants on the platform , or for supporting community marketing, developer or initiatives.

Farming on Position Exchange

Yield Farms permit users to earn POSI while assisting Position Exchange by staking LP Tokens.