DeFi has always been one of the hottest topics in the crypto world. In recent days there have been many new tokens in the DeFi world. Until it was all Ethereum and Uniswap I did not pay enough attention to this. But now after the launch of CUB tokens, I started exploring this and have been trying to understand this in simple terms.
Passive income from DeFi
There are 4 ways in which one can get passive income from DeFi. Staking, Providing liquidity, Yield farming, and lending. These are some of the terminologies I have been hearing frequently when it comes to investment through DeFi. Each one of these is unique in its own ways and also involves risks of we don't know what we are doing.
Staking
This is the most common thing we see in the DeFi world. Many blockchains had this feature even before this fancy term DeFi was popular. There are many blockchains giving rewards for staking. I don't know why this feature is trending now especially after the term DeFi got popular.
But yeah people can purchase tokens and stake them to receive staking rewards. The staking rewards are not controlled by anyone but instead by the contract itself making it decentralized. This is one of the advantages we get from blockchain technology.
Providing liquidity
This is the second passive income opportunity that DeFi provides us. I did not grasp this easy and there are still many things unknown to me regarding providing liquidity. So, I would like to talk about this only on a high level.
I did try to provide liquidity for CUB - BUSD pair in Binance smart chain. This is my first experience with providing liquidity. I heard that there is also a high risk involved in providing liquidity because if the value of the coin is dropping it may not be a profit for us. So people providing liquidity should be careful about this.
Yield farming
This is the next fancy term used in the DeFi world where we can use the liquidity pool to farm some rewards. Whenever we add tokens to the liquidity pool, we get assigned some number of LP tokens for the token pair. Then these LP tokens can be staked to receive rewards. This is what people call yield farming.
I learned this as well while doing it on Binance Smart Chain. I was hesitant to give it a try on uniswap because of the huge gas fees. Compared to ETH gas fees it is far better in Binance Smart Chain at least for now. The APR from these yield farming and staking are usually very high because of the risk that is involved.
Lending
This is the next thing that I hear when it comes to DeFi. Honestly, I did not reach much on this topic but from what I understand, it is more link lending our tokens for some APR in a decentralized manner and the advantage here is that we don't have to worry if the lendee would pay us back or not as it is controlled in a decentralized manner.
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