The world of decentralized finance (DeFi) is growing at an incredible rate. The entire sector has been gaining traction, thanks to the introduction of yield farming and crypto staking as part of investing and cryptocurrency asset management in the UK.
With both methods, you earn interest on your crypto holdings, but there are some differences between both options worth considering before choosing one over the other.
Why You Should Consider Investing in the DeFi Space
Similar to the digital marketing blockchain, DeFi protocols are promising for many reasons. They’re fully decentralized, so there’s no single entity controlling them.
They’re also automated, which means they run themselves without human input or intervention.
This provides an advantage over traditional financial systems because it makes DeFi investments more transparent and accountable than their centralized counterparts.
Want to learn more? Here’s a great article on the rise of decentralized exchanges!
What Is Staking?
Staking involves holding cryptocurrency on a blockchain network. This act helps create new blocks and secure a blockchain’s decentralization. Users who stake their coins are rewarded with more coins for helping keep the network secure.
This means staking is similar to mining, but it doesn’t require any computer power or complicated hardware.
You simply need to hold your coins in a staking wallet (or use an exchange) to take part in staking rewards programs.
What is Yield Farming?
Yield farming involves using cryptocurrency to provide liquidity to a decentralized finance protocol. In return, users get a reward in the tokens that are being provided as collateral in the blockchain market.
This means locking up your crypto assets in order to earn interest. For example, you might deposit your ETH funds into the MakerDAO protocol and receive Maker tokens (MKR) in return. Your funds would then be used as collateral for issuing stablecoins.
As you can see, yield farming is like staking but goes beyond just holding crypto assets. It’s also about taking advantage of lending and borrowing opportunities on decentralized exchanges (DEXs).
Which One Is Right for You?
Both yield farming and staking can be great options for experienced crypto investors, but it can be overwhelming for newbies.
To help you get started, here are some tips:
1. Know your risk tolerance
You should know that you bear the risk of loss when investing in cryptocurrency. Consider how much you can afford to lose and don’t go over this amount.
Crypto yields are volatile and not insured by any government agency. There is no FDIC for crypto!
2. Decide if you want a passive or active investment
If you want a passive investment, like a savings account, then staking is preferable because it requires little effort on your part.
If you’re looking for an active investment with more control over your crypto assets and potentially higher returns, yield farming may be right for you.
3. Compare fees and rewards structures
Fees vary between staking pools and yield farms. Make sure you consider all fees when weighing different options.
Some yield farms will take a cut of your earnings, while others won’t charge anything at all — so be sure to check out the fine print before jumping in.
When comparing yields on two options, make sure that they’re reporting their returns in the same currency or token (e.g., annual percentage rate vs. annualized percentage yield).
Take Your First Steps into Crypto Investing
Just like any investment, it’s important to enter the DeFi world with as much knowledge as you can. However, the crypto space moves fast – by the time you feel confident about getting started, the rules of the game have already changed.
At Key Coin Assets, we’ve designed a shortcut towards generating massive profits in crypto and the blockchain.
Instead of doing the work yourself, let our experts on cryptocurrency asset management in the UK handle everything for you.
We’ll take into account your risk profile, financial goals, and other elements to make sure you get the most out of your crypto investment.
We’d love to give you a FREE, no-obligation consultation – send us a message to get started!