The DIFFERENCE Between YIELD FARMING, STAKING and LIQUIDITY POOL in the Crypto World
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What is The DIFFERENCE Between YIELD FARMING, STAKING and LIQUIDITY POOL in the Crypto World?
Staking is the process of actively participating in transaction validation (similar to mining) on a proof-of-stake (PoS) blockchain. On these blockchains, anyone with a minimum-required balance of a specific cryptocurrency can validate transactions and earn Staking rewards.
Yield farming is a cryptocurrency investment strategy that holds out the hope of bigger returns than most conventional investments are offering these days. It could be a chance for the bold to win big -- or for the holders of new currencies to manipulate prices. The U.S. Securities and Exchange Commission has put the industry on notice that it has reservations, in particular over whether the practice should be regulated as a securities offering.
When you deposit money in a bank, you’re effectively making a loan, for which you get interest in return. Yield farming, also known as yield or liquidity harvesting, involves lending cryptocurrency. In return, you get interest and sometimes fees, but they’re less significant than the practice of supplementing interest with handouts of units of a new cryptocurrency. The real payoff comes if that coin appreciates rapidly. It’s as if banks were luring new depositors with the gift of a tulip -- during the Dutch tulip craze. Or a toaster, if toasters were the object of wild speculation and price swings.
A liquidity pool is a crowdsourced pool of cryptocurrencies or tokens locked in a smart contract that is used to facilitate trades between the assets on a decentralized exchange (DEX). Instead of traditional markets of buyers and sellers, many decentralized finance (DeFi) platforms use automated market makers (AMMs), which allow digital assets to be traded in an automatic and permissionless manner through the use of liquidity pools.
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