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Bringing conventional financial services to the bitcoin sector is one of DeFi's objectives. The yield farming method is one of the technologies that enables this. In other words, it's a method for investors to increase their DeFi token holdings without having to mine or trade.
Similar to interest-bearing investments, yield farming operates. It can generate a passive income for token holders in this way. Although this explanation seems straightforward, the process actually entails a number of intricate steps. And to clear up any misunderstandings, we'll give a thorough yet understandable rundown of these operations.
The yield farming technique resembles mining via Proof of Participation in certain aspects (PoS). DeFi token owners, for instance, have their tokens locked up on a platform. In return for the tokens' immobility, they earn money in this way. Many yield farms have yields that are double digits annually, which is higher than the majority of conventional fixed income investments.
Even if there are some parallels, yield farming is very different. Since the tokens are not mined, there is no "miner." The LPs contribute to yield farming and give the pool liquidity. They receive compensation in the form of bonuses or interest payments in exchange.
The amount of interest paid is determined annually. The investor will receive a 3% return on their investment after a year if they receive a yield of 3% from farming. When computing annual returns, two primary metrics are taken into account: We shall employ APR in ALL IN AI, hence we will operate using basic interest.