Leveraged Yield Farming
With a market size of a whopping 11.78 US dollars, the decentralized finance market is the new big thing in town. The number of DeFi enthusiasts is skyrocketing across the global economy. Among the numerous strategies and approaches used in DeFi, the primary position falls to the palms of Leveraged Yield Framing.
Despite being one of the latest concepts, Leveraged yield farming has several admirers to its credit. But for a beginner to understand leveraged yield farming, the concept of yield farming must be familiarized first.
What is Yield Farming?
Yield farming is defined as depositing any cryptocurrency to a depositor pool in the hope of gaining great interest rates and other rewards. This pool of cryptos is used for smart contracts by appropriately lending them out for a particular interest. It suits people who intend to make greater returns from their cryptos. People tend to put huge sums into the pool to earn higher amounts as interest.
Despite the inherent risks associated with investing such vast sums of cryptos, yield farming is one of the most popular investment tools in DeFi presently. There are countless yield farms present only, which offer varying schemes based on the interest rates provided. Other than common interest, a yield farmer (a person who indulges in yield farming) may also be presented with additional incentives like governance tokens, transaction fees, etc.
What is Leveraged Yield Farming?
Leveraged yield farming can be considered the next-level yield farming. By definition, it means the process of borrowing liquidity for yield farming. In this process, the farmers tend to borrow money or cryptos from other liquidity pools to invest in the yield farms in hopes of making more extensive interests. As yield farming generates much profit, people who aspire to farm more often practice leveraged yield farming. The people engaging in borrowing funds will have to provide some collateral to avail of the liquidity funds.
Although it may sound as simple as borrowing money, one of the major doubts that beginners in leveraged yield farming may have is regarding the interest they will have to pay for the borrowed fund. Indeed, borrowing funds in the crypto world often come with higher interest rates. But, the higher capital efficiency offered by leveraged yield farming instantly solves this problem. Leveraged yield farming can offer undercollateralized loans;
that is, the borrower can borrow more than what their collateral is worth. This facilitates the farmer to borrow more significant sums of money from the liquidity fund and invest it in the yield farm to generate a substantial profit. People who borrow vast sums of funds to deposit in yield farms often make more than enough money to pay the interest rates for the funds.
Leveraged yield farming benefits the farmers and those who provide the liquidity funds. Because, on one side, the farmers get more funds for lesser collateral, and on the other side, the liquidity fund providers would get more business as people often tend to borrow much more than what they need as it is undercollateralized loans. Both parties benefit from the deal, one of the significant reasons leveraged yield farming has gained larger-than-life popularity.
Also, to ensure maximum safety and security in the lending process, the borrower will have to pay borrowing fees to the liquidity pool platform or lender. The borrowing fees could fall anywhere between 10% to 30%. Although it is a bit on the higher end, it is rational because they are providing undercollateralized loans that stand the chance of not being paid back.
Leveraged Yield Farming Platforms
Leveraged Yield Farming platforms are online marketplaces specifically dedicated to lending liquidity funds for leveraged yield farming. Most of these platforms will have multiple liquidity pools from which the farmer can borrow the required funds. Depending on the pool from which the farmer borrows, there would be varying leverage rates offered within the same platform. Many leveraged yield farming platforms are present online, but it is essential to deal with the best ones among them who offer tokens with governance right for better security. Some of the most popular leveraged yield farming platforms are:
- Alpaca Finance
- Binance Smart Chain
- High APYs
- 58 liquidity pools
- Offers two to three times leverage
- Apricot Finance
- Offers 1.25 to three times leverage
- TVL of $150 Million
- Alpha Homora
- TVL of $827 Million
- Ethereum, Avalanche, BSC
- High APY for Ethereum
- Just a single asset is needed as collateral
- No lock-up period (the farmers are free to withdraw the tokens whenever required)
- APY rates up to 6.52%
- Flexible lending periods
- Multiple cryptos are available
- Lowest spot trading commissions
- Battle Infinity
- IBAT coin supported
- Up to 12% APY rate
- No need for personal information to register
- Flexible and convenient withdrawal terms
Check out our guide on How To Invest In DeFi
Leveraged Yield Farming Calculator
Beginners in leveraged yield farming likely need help understanding the possible return they make from the process. And as cryptocurrencies are essentially volatile in nature, the final profit earned from them cannot simply be calculated via one or two formulae. Also, the turnover would vary significantly depending on the borrowing asset, the interest rate of the particular liquidity pool, the amount of leverage, etc.
Leveraged yield farming calculators for various cryptos are available online, like the Solana leveraged yield farming calculator. Such tools come with changeable position settings, using which the farmers can simulate their possible equity position. They enable the farmer to enter a particular position and fetch the details on the potential profits that they could make from that position and so on. They also help understand how a price change would essentially affect the equity values and when they will have to face the risk of liquidation.
The leveraged yield farming calculator also lets the farmer understand how the amount of leverage and the nature of various blockchains impact the equity values. It provides enough information on the farmer’s risks, profits, etc., possibly at stake. Thus, they can be considered the best tool for a beginner to make a calculated investment in leveraged yield farming.