One hot trend in cryptocurrency is yield farming, but it is not made for the crypto beginner or people who cannot afford to lose money. On the other hand, this form of decentralized finance has taken the world by storm. As an investor, you can lock up your crypto in the DeFi market. Still, with it is a new feature, single-sided farming, but to understand what it is, we need to start at the beginning.
Yield Farming Explained
With yield farming, cryptocurrency holders can earn rewards on their holdings. You deposit cryptocurrency units into the lending protocol and earn interest from the trading fees. Sometimes you get added yields from the governance protocol token.
So, yield farming works the same as taking a bank loan. You must pay that loan with interest when you take money from the bank. The yield farming is the same, but the banks are crypto holders. Yield farming uses idle crypto that would waste away in a hot wallet or exchange.
Hence, it provides liquidity into the different DeFi entities, for example, Uniswap, in exchange for returns. In the DeFi community, farming happens in pairs as the farming rewards as it goes towards incentivizing liquidity, and it needs two sides.
Historically, some of the best yield farming came from SushiSwap, Uniswap, and the distribution of the 1INCH that amassed impressive TVLs quickly. All three focus on some popular pairs, which are ETH/USDC, ETH/WBTC, and ETH/USDT.
Still, if you deal in either of them, the most annoying thing is to allocate 50% of each asset exactly to farm. But creating equally balanced pairs of 60% BTC, 30% ETH, and 10% USDC to utilize your holdings is not easy. This is where single-sided farming comes into play.
Single-Sided Farming is a Simple Way to Win
One example of a platform introducing single-sided farming is Orbs, with many others to follow. Why did they do it? Orbs did it to maximize the returns by encouraging greater DeFi participation and separating the stablecoin pooling from the cryptocurrency pooling.
The reason is that liquidity pools need to lock coins to tokens into smart contracts effectively to provide a decentralized exchange and DeFi operation. As a user, you must lock equal amounts of your tokens into a pool, as explained previously.
Hence, the rewards earned from pool activities are proportionally distributed to an individual stake. Still, the model has a lot of disadvantages as the pools constantly readjust holding when you want to maintain equivalent amounts of two tokens.
Thus, it exposes users locking in their cryptos to price risks, volatility, and slippage. So, you cannot capitalize on your complete profile without rebalancing your holdings to join the pools. So, the solution is single-sided farming to facilitate efficient capital allocation.
It enables you and the centralized finance participants with crypto exchanges to participate in the DeFi when pooling only one token and not two of the equivalent amounts, known as double-sided.
What Does It Mean For You?
All it means is that you can monetize your tokens at their full potential and collect a higher APY to help compensate for a higher risk as a cryptocurrency holder.
Furthermore, when participating in pools, you can avoid converting your tokens into equivalent amounts of your stablecoins. This form of farming is easy to use after the tokens are staked as you need not seek different high-yield pools as it does it automatically annualizes at a 100% rate. It also reduces costs for you.
Originally posted 2022-12-08 18:24:07.