Banking Business

Understanding the difference between Staking and Yield farming

The cryptocurrency market is booming with their prices soaring. No one wants to miss out on earning a high yield. This has led to an increase in the number of cryptocurrency trading platforms in India. Even though it is a risky investment, the potential of high returns makes it attractive to people.

The chance to earn more than you can invest in has always captured the eyes of traders and brokers. This has paved way for the introduction of two new terminologies in the crypto market, which are staking and yield farming. These are ways to earn interest in either coins or money from the cryptocurrencies owned. If you are interested and want to know more about it, you are at the right place. We have prepared a guide on the two for your understanding.

What Is Staking?

Staking was launched, with the proof of stake concept, the better and efficient alternative to proof of work. It allows users to put a fixed amount of money in the liquidity pool. When people put their money at stake, it locks in the amount for crypto coins funds. Here is how you can do so

  • Select a cryptocurrency exchange walletthat is reliable and secure.
  • The next step involves the transfer of funds for the lock-in.
  • Now choose amongst the various staking pools depending upon the yield to put your money in.
  • Now, once the amount is deposited. Wait for staking rewards.

In a staking network, a certain sum of money is required beforehand to complete transactions. This step is done to ensure security and that a proper procedure is followed for effective working.

What Is Yield Farming?

Yield farming is a relatively new concept or methodology in the crypto world. In it, an investor is responsible for the planning of the exchange of crypto on various trading platforms. So, the users can choose to lend their crypto assets in exchange for interest. The majority of trading platforms offer fixed interest rates, however, some work on market rate fluctuations. The best way to earn more is either by lending for the long term or investing more in cryptocurrency. Now, if you are intrigued to know more about it, we will tell you how is it done

  • Yield farming uses the concept of smart contracts to equip transactions.
  • All these transactions charge a certain amount of fee in exchange for the chance of earning a reward.
  • Then, in exchange for lending cryptos, a token is provided to facilitate the working of liquidity pools.

The differences between Staking and Yield Farming

Return on investment

Between the two, staking is considered a safer bet as it is more stable. In yield farming, there is the chance of greater losses in case the market value plunges. The rate of return in staking is somewhere around 2%- 12% while yield farming can go up to 250%.

Autonomy over transactions

In the case of yield farming, it provides users with the option to choose where they want to put their funds. So, the investors have full control over their crypto lending. However, in the case of staking it is in the hands of the investor to allocate the money in crypto assets.

Risks involved

In yield farming, when cryptocurrency is borrowed, it is done in exchange for collateral. Depending upon the platform, some even charge 200% value of crypto assets. In case of market fluctuations and losses, the platform has the right to sell the collateral. However, in the case of staking, it is relatively safer as compared to this before it offers network security in its transactions. So, that means only the amount that has been put to a stake is at risk of loss.

Conclusion

While staking and yield farming both have their advantages and disadvantages. So, before you select one, it is better to gain an understanding and in-depth knowledge of the subject to avoid any risks. If you are looking for a reliable cryptocurrency exchange in India to start investing, there are numerous options, such as Wazirx. It lists all the popular offers safe and secure transactions

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