It is no wonder or surprise that decentralised finance (DeFi) has opened up doors to multiple avenues of income for investors in recent years. Yield farming in particular has become an increasingly popular investment strategy in DeFi because these assets are said to provide access to potentially high yield generation.
What is yield farming?
Simply put, yield farming is the act of lending your crypto assets in exchange for returns. These DeFi platforms will lock up your crypto assets in a liquidity pool, essentially a smart contract for holding funds. This differs from staking which keeps users in control of their assets, whilst yield farming locks users assets temporarily to generate higher returns.
In essence, you can effectively earn more crypto by yield farming instead of having your cryptocurrency just stored in a wallet. As a yield farmer, you would be able to earn from transaction fees, token rewards, interest and appreciation in price.
Whilst the returns on yield farming may seem promising, it does come with a fair share of risks too, including:
Yield farming comes with a high degree of volatility. A lot of yield farmers tend to move their funds around to chase the best DeFi protocols that offer investors the highest percentage of return, also known as “crop rotation.” This has led and significantly contributed to the high volatility experienced in the industry.
This means tokens could surge or even plummet whilst locked up in a liquidity pool, leaving liquidity providers with either high returns or a significant amount of unrealised loss.
This is a type of exit scam where cryptocurrency developers gather investor funds for a project with the attention of abandoning the project without returning the funds to investors. According to a report by CipherTrace, 99% of major fraud in the last six months of 2020 were due to rug pulls and other exit scams.
Like with all budding industries, new DeFi protocols are constantly being introduced into the market. This means competition continues to grow. As a result, there is pressure on companies to release new contracts and features without the necessary audits and regulations in place. Sometimes protocols may mirror competitors, which leads us to our next point.
According to a report by CipherTrace, fraud and misappropriation accounted for the majority of the $1.9 billion in crypto crime in 2020.
As a result of the risks of yield farming and investing in general, DeFi investors are starting to look for higher transparency on their investments and are determined to increase their exposure to real-world assets as well as diversity in their investment portfolios.
Hence, asset-backed yields hold the key to unlocking this reality.
Asset-backed yields essentially mean investments are backed by tangible, physical assets.
Platforms such as Bricktrade, a platform that tokenises real estate assets and opens them up to the possibility of investment from crypto market participants, are able to provide investors with added security. All tokens are backed by properties — limiting investor downside and protecting investor capital.
Asset-backed yields are able to provide exposure to real-world assets, allowing investors to diversify their investment portfolios. With tokenisation, Bricktrade can provide investors with the choice to participate in opportunities across the globe, seamlessly and at a nominal cost.
Through Bricktrade, not only are liquidity providers able to include tangible assets into their portfolios but investors can now choose from a wide range of properties fitting different investor objectives: high risk, low risk, income generation or even fractional ownership.
Platforms such as Bricktrade provide investors ease with the technology to track investment performance in real-time whilst ensuring the safety of asset-backed yields with the company’s very own blockchain technology. Investors will be able to take on new investment opportunities that are expected to yield higher returns, with reduced anxiety in comparison to yield farming.
Evidently, asset-backed yields can be highly beneficial to the crypto community. Furthermore, Bricktrade has proven to bring a different dimension to the already popular property investment market, creating more room for crypto investors to penetrate the property market with ease.
If you would like to find out more information about Bricktrade, visit their website here: https://bricktrade.co.uk/platform