Power traders use “staking” and “yield farming” to generate passive income, but there are risks.
networks. “DeFi” is just a catchall term for “decentralized finance”—pretty much all the services and tools built on blockchain for currencies and smart contracts.
This type of hold-for-interest has become so popular that mainstream crypto dealers like Coinbase offer it. Some tokens, such as the very stable USDC , offer about .15 percent annual interest rates , while other digital currencies might earn you 5 or 6 percent a year. Some services require staking to lock up funds for a certain period of time and may require a minimum amount to draw interest.
The rewards, which add up 24/7, are usually paid out as crypto tokens that can be harvested. Those harvested coins can be invested back into the liquidity pool and added to the yield farm for bigger and faster rewards, or can be withdrawn and converted to cash. Some DeFi services offer leveraged investing, which is even riskier. By adding a 2X, 3X or higher multiplier to your yield farming investment, you’re basically borrowing one type of token to pair with another and paying a collateral you hope will be recovered by a high APY. Bet wrong, though, and the entire holding can be liquidated, resulting in only a percentage back to you of what you originally invested.
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