Yield Farming vs Staking: Main Differences

Yield farming and cryptocurrency staking have been the talk of the town for quite a while now, but even those who have been in this aspect still can’t decide the difference between staking and yield farming.

Key Takeaways

  • Yield farming is quite risky and besides the risks of holding cryptocurrency assets, it can also provoke additional losses. However, since DeFi protocols keep growing, users now have the opportunity to choose assets with a successful farming history and lower fees.
  • While farming aims to generate all possible returns, staking focuses on helping the blockchain network stay safe for rewards.

Yield Farming in Crypto

Cryptocurrency yield farming is an act that enables a user to receive a reward in native protocol tokens for providing or obtaining loans, or for providing liquidity to decentralized exchanges and applications. To put it simply, farming is a mix of lending and staking. A way to use cryptocurrency to earn even more cryptocurrency.

Cryptocurrency Staking

Staking is a strategy through which cryptocurrencies are earned without the need to actively trade them. This process allows users to participate in verifying a transaction (similar to mining) on a Proof of Stake (PoS) blockchain. Staking is the process of locking funds on a cryptocurrency wallet in order to maintain the operation of the blockchain in exchange for receiving passive income.  Staking does not transfer the coins but transfers their rights. The coins continue to belong to the owner, protected by a smart contract.

Staking Crypto with EGG

Staking tokens or crypto coins with EGG is easy, simple, and straightforward. All you need to do is connect your wallet, whether it be a Metamask, Fortmatic, or via email, and head up to confirm the connection. Once you’re done with the wallet select the tokens you want to stake and deposit your coins. Make sure not to refresh, log out, etc, during any of the staking stages, since you might have to start the process all over again. Easy, right? Proceed to stake now! 

How to Start Yield Farming and How Does It Work?

How to Start Yield Farming and How Does It Work

Unlike cryptocurrency staking, which is basically holding coins in the POS system to obtain extra rewards later, yield farming is the act of adding money to the liquidity pool. After coins are added to the liquidity pool, the user officially becomes a liquidity provider. In exchange for providing liquidity for the tokens, the liquidity provider gets rewarded. Reward tokens can be deposited into other liquidity pools.

The pool can also be incentivized by the accumulation of a token that is not on the open market or that has a small volume. Your income depends on the amount you invested in yield farming and the rules on which the protocol is based. You can invest your reward tokens in other liquidity pools and that can lead to more complex investment chains.

Staking Crypto vs Yield Farming: Return on Investment

Staking Crypto vs Yield Farming: Return on Investment

The major advantage of staking is that you earn more cryptocurrency and interest rates can be quite high. You might earn between 10% and 20% per year in some situations. It’s possible that it could be a very lucrative way to put your money into the market.  All you need is crypto with the proof-of-stake algorithm. Staking is another method of contributing to the blockchain for a cryptocurrency you own. These currencies rely on stakeholders to authenticate and maintain the network because they don’t have their own blockchains. But how does crypto farming work?

Yield Farming ROI Categories

  • Token Prizes: Cryptocurrency prizes are similar to inducements for liquidity. The coins are dispersed at specific intervals, ranging from weeks to years. Users can utilize DEX as well as exchange services to trade such crypto.
  • Commission income from transaction fees. Assume the pool participant’s commission range is 0.003% and 15%. That is one pool’s fee. Others charge around 0.02 percent. Market makers get paid every time a trade occurs. Most likely, governance coin owners will receive a share of the profits in addition to that.
  • Increase in the capital. An increase in money aids in the calculation of any tough-yielding farming opportunity. When the right yield farming strategy includes REN, BTC, CRV, and SNX assets, they become extremely volatile and no longer require correlation. It’s essential to utilize suitable techniques to counteract volatility while also maintaining alignment with stablecoins.

Final Thoughts 

Yield farming vs staking: both are different aspects of the DeFi ecosystem. Yield farming is, roughly said, a combination of liquidity mining and staking, and if used correctly, you can benefit from it. If you can’t decide between crypto farming vs staking, it is high time to do in-depth research and hop into staking and farming adventures.

Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of EGG Finance. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.