What is yield farming?

Through an industry-first offering, the Divi DeFi platform takes yield farming to another level. Learn about the high returns you can earn and how. Let’s look into this together.

Divi Project

December 12, 2022 · 3 min read

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What is Yield Farming

Yield farming is the attempt to derive the highest possible return from the DeFi market. Yield farming is extremely high risk/reward and attracts investors of all sizes. 


  • Anyone is welcome to dip their toes into DeFi yield farming. 

  • It’s a fascinating and rapidly evolving landscape. 

  • It allows you to maximize your returns. 


So how does one derive the highest possible return from the DeFi market? Let’s dive into that…


Where does the yield come from?


With the Divi DeFi platform, we have thought long and hard about the typical challenges of DeFi and tried to address those. With our cross-chain staking, you will be able to take advantage of Layer-1 Divi Stakes, along with earn fees and LP token rewards, simultaneously. This is an industry first, and we are excited to bring it to you! Stay tuned, as this Divi double-dip will be discussed at length in an upcoming article. 

DiviDeFi

DeFi Earners

Traditional Yield generators in DeFi

  • Borrowing/lending 

  • Protocol fees

  • Token issuance 

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Yield, from where?

The value of a token is dependent on demand. If there is no demand, there is no value. Traditionally, marketing and advertising have taken a back seat; yield farming is the primary value driver for new DeFi tokens.


Protocols/dApps distribute vast amounts of value to users because farmers bring liquidity to the protocol/dApp. Remember, liquidity is king! It’s like taking your marketing budget and giving it directly to your stakeholders instead of creating advertisements. People will deposit large amounts to collect high-percentage rewards. Is it sustainable? Not usually. High-percentage rewards typically decrease quickly with time/additional deposits. However, with Divi, we are again releasing an industry first so that things will be different.


A Simplified Liquidity Example:


In our previous article, you added equal parts ($100) of ETH and DIVI(ERC-20) to a liquidity pool. In exchange for your deposit, you received a new token, ETHDIVI, which is known as the LP Token. In this example, the liquidity pool is currently at $1000 value. Having deposited $200 equivalent of ETH and DIVI(ERC-20), your LP token earns you 20% of transaction fees in this pool. 


A trader, in our example, exchanges $100 ETH for $99 of DIVI(ERC-20). The transaction fee for this swap is $1*, and because of your LP token, you earned $.20 on this transaction.


If you want to regain access to the ETH, Divi(ERC-20), and earned transaction fees, you will need to return the ETHDIVI LP token to the smart contract. Doing so will return the full amount of ETH, DIVI(ERC-20), and accrued Trading fees. 


*For example purposes only. Actual transaction fees will be detailed at a later date.

Understanding return on investment (ROI)


When yield farming, understanding your actual return on investment can be tricky. DeFi's return on investment is commonly expressed in either annual percentage yield (APY) or annual percentage rate (APR). APY includes compounding in its calculation; APR does not. Also note that APY is a snapshot of the reward emissions at the current moment, not a guarantee of annual return. 


Yield farming is DeFi’s most lucrative play. With Divi DeFi, we are stepping up the earning potential by allowing you to capitalize on the traditional DeFi and Yield farming benefits while not sacrificing your layer-1 staking rewards. That said, risks are involved when you provide liquidity on a DeFi protocol like Uniswap. It’s important that you understand risks like slippage, bugged smart contracts, and impermanent loss. In our next article, we will dive into those so you understand them and are better prepared to mitigate those risks. 


Ultimately, the success of the DIVI project depends on our community's support. We want to give our community the insights needed to succeed in this space. If you need additional clarification on this topic or anything DIVI or crypto-related, jump into our Discord. We love learning and growing together. 

Up Next: The Risks of DeFi

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Divi Project

December 12, 2022 · 3 min read

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