Yield farming, or yield farming In English, it is a relatively new concept in the cryptographic ecosystem, but it is rapidly gaining popularity among Ethereum and now Bitcoin users.
Who hasn't dreamed of having a financial system that allows for generating interest and high profitability just by holding assets? Well, in the crypto world today, there is increasing talk of a high-yield mechanism that allows for generating large profits through lending protocols, and by keeping assets locked within said protocols.
A few days ago the Bit2Me News team reported on the incredible growth that the ecosystem was experiencing DeFi with the rise of Compound; a platform based on Ethereum designed to allow users to earn profits while freezing their assets and providing liquidity to the platform.
Now, it seems that this trend, called “yield farming” is moving towards DeFi ecosystems. Bitcoin. Crypto projects Ren Protocol, Synthetix y CurveFinance, which allow Bitcoin to interact with these ecosystems, are implementing an incentive mechanism that allows users to provide liquidity to the platforms while keeping their cryptocurrencies frozen. This is a new way of saving and requesting decentralized loans that is attracting the attention of millions of users for the profits it can generate, but Will everything be as positive as it seems? Let's see.
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“Yield Farming” for Bitcoin
Ren Protocol, Synthetix and Curve Finance projects have joined forces to implement a common liquidity pool based on Curve for the Tokens BTC from each of these platforms. With this initiative, the Bitcoin tokens represented on these platforms as renBTC, wBTC y sBTC, respectively, will allow users to earn incentives and rewards for keeping their bitcoins locked by providing liquidity to the pool.
But, in addition to the interest that they can generate proportionally to the amount of liquidity that users contribute, they will also receive incentives in the form of REN, SNX y CRV, which are the native tokens of the platforms and operate as governance tokens. The latter, the governance tokens, grant users rights to participate in voting and decision-making that takes place within these protocols. Likewise, users will receive rewards in the protocol's BAL token. Balancer from Ethereum.
In a publication In its blog, Synthetix explains that users who lock their bitcoins and provide liquidity to the liquidity pool will receive rewards in CRV tokens, from Curve Finance and BPT (Balancer Protocol Token), so users will also be able to receive BAL as part of their rewards.
Source: Synthetix
Synthetix's post also notes that users who provide liquidity to the pool will share their earnings in BAL, CVR and BPT in proportion to the contributions made. In addition, Synthetix highlighted that in the weekly distributed rewards of the BPT token, users will enjoy 10.000 SNX and 25.000 REN.
Risks associated with yield farming and liquidity pools
As mentioned at the beginning, the concept of yield farming is relatively new within the crypto ecosystem. So now, combining yield farming with these protocols can create better opportunities for earning incentives and rewards, but it also creates a much more complex system than what is known to date.
Although in the opinion of several experts, such as Camila Russo of The defiant, notes that the combination of these protocols to further boost Bitcoin in DeFi ecosystems is a very attractive initiative.
It is also important to note that since the BTC tokenized on these platforms have a 1:1 ratio with Bitcoin, meaning that each of these tokens is worth the same as a real BTC, the protocol argues that no adverse losses will occur.
However, despite the promise of being risk-free or risk-free, users and investors of these platforms must always apply the principle of “investing only what they can lose”, so Bit2me does not recommend anyone to place their assets on these types of platforms no matter how promising they may seem.
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