Some of you may already know what yield farming means. This is one of the most popular ways to earn in crypto. At first glance, all you need to do is put your stablecoins into a pool and enjoy your APY.
🍉🍈 But how does it actually work? To explain it, we'll need some watermelons and melons first:
Just imagine someone wants to swap their watermelons for melons. They go to the shop (an exchange or DEX), and the shop needs to have melons in stock to make the swap. But who provides the melons? The people who already put their melons into the liquidity pool: you.
Now imagine you provided 10 melons worth $50 in total, and the price of one melon goes up by $1. Does that mean your position is now worth $60? Wrong.
❗️ In a liquidity pool, the assets are getting rebalanced as people trade. So when the price of one asset changes relative to the other, the amount of each token in your position can change too. This can lead to impermanent loss compared with just holding the two assets.
And you're not the only liquidity provider. There can be many of you. The more liquidity a pool has relative to the trading activity, the smaller your share of the fees may be. APYs can vary significantly depending on the pool, protocol, token pair, trading volume, incentives, and market conditions.
And don't forget about the risk of the smart contract itself, as well as the risk associated with the assets you're depositing.
⚖️ APY for yield farming usually ranges from 3% to 7%.
🚩 Our crypto lending works in a somewhat similar way, but with a different collateral structure. You provide USDC to the lending pool, and the person borrowing your USDC provides BTC or ETH as collateral. The collateral is worth more than the amount they borrow.
⚖️ The LTV is 80%.
APR is floating as well and can rise with increasing demand for loans, so just like with yield farming, it's not fixed.
🔘 The protection of your money: If collateral falls toward the liquidation threshold, the position is automatically closed and the USDC is returned to the pool. Your earned returns remain yours. Everything you earned before that remains yours.
🔘 There's no dependency: Each market is isolated, so a drop in BTC doesn't affect an ETH market. There’s no fixed maturity, and you can withdraw anytime while liquidity is available.
🔘 Returns: APR varies with demand, and profits aren't guaranteed. Overcollateralization and automatic liquidation help reduce the risk of losses.
If you want to dive deeper into it, go ahead: app.8lends.io/lend
Have you tried crypto lending already? Tell us in the comments!