What is cryptocurrency farming and how much can you earn?
Passive income has always been one of the most discussed topics; every investor wants to get maximum profit from their investments with minimal risk.
Thanks to cryptocurrency, new options for passive income are emerging every day, one of which is cryptocurrency farming.
I became interested in this topic myself, and I decided to check how much you could earn by farming on the listing of a new cryptocurrency.
But first, let's try to figure out what this new type of income is and whether it's really worth pursuing.
Cryptocurrency farming is a relatively new, but rapidly gaining popularity, way to earn money in the digital asset sector.
Cryptocurrency farming, also known as "yield farming" or "liquidity mining," is the process of generating income by contributing your cryptocurrency assets to a liquidity pool.
Market participants, known as farmers, contribute their assets and, in return, receive rewards, usually in the form of transaction fees or new tokens.
The basic principles and mechanisms of farming can be summarized in a few key points.
First, cryptocurrency farming relies on the use of decentralized finance (DeFi) platforms that allow users to exchange assets, borrow, and lend without intermediaries.
Secondly, the efficiency of farming is determined by factors such as current reward rates, gas costs (transaction fees on the Ethereum network and some other blockchains), and the overall stability of the DeFi ecosystem.
Finally, a key feature is the timing aspect: some farming strategies require active involvement and constant reorientation of assets to optimize profitability.
In terms of earnings, cryptocurrency farming can have significant potential, but it also comes with increased risks. Potential income depends on:
- The value of invested assets.
- The chosen farming strategy.
- Fluctuations in market rates and prices of cryptocurrencies.
- Ability to adapt to changes in the DeFi ecosystem.
In simple terms, the process boils down to investing money and receiving a reward. You can join the process on crypto exchanges such as:
- Binance,
- Coinbase,
- KuCoin,
- Crypto.com
In theory, everything looks quite good and promising, but let's look at what the earnings situation looks like using a real example.
How much can you earn by farming cryptocurrencies?
You can find stories online of people earning hundreds of percent annually and practically becoming millionaires by farming cryptocurrencies. This may have been true back when this method of earning money first emerged, but the situation is somewhat different now.
About a week ago, I decided to participate in farming a digital asset called Saga (SAGA). The name of this cryptocurrency meant nothing to me, I was simply curious how much profit 1000 US dollars would bring.
I decided to conduct the experiment on Binance, as I already had an account on the exchange and the app on my phone. Here's what I needed to do to get started:
- Buy one of the cryptocurrencies on the exchange - BNB or FDUSD
- Then in the mobile app, select Earn and Launchpad
- Then we deposit BNB or FDUSD by clicking the “Start staking” button
- The process lasts 4 days, and the reward in coins is credited daily
After I started staking Saga (SAGA), I was credited with about 3 coins within three days of staking. After the listing and the opportunity to sell the coin became available, its price was $7.
That is, by selling three coins I received 21 US dollars, which is 2.1% of the 1000 dollars I invested.
On the one hand, it's not bad, but you still had to exchange the previously purchased BNB and FDUSD back into USDT at the market rate in order to feel the effect, so to speak.
After the exchange, I had 1013 USDT in my account, meaning the result of my three-day investment was $13 or 1.3%
Conclusion: Farming is profitable, but you shouldn't expect to make any significant profits from it. New coins are listed only a few times a month, so it's unlikely you'll be able to earn more than 4-5% profit per month in the long run.
It's also important to remember the risks associated with a decline in the price of BNB or FDUSD, as you're buying one cryptocurrency and then selling it again. Due to exchange rate fluctuations while farming Saga (SAGA), I lost about 0.8%.
If you decide to farm professionally, it's best to hedge exchange rate risks with cryptocurrency brokers by opening unsecured sell trades on BNB or FDUSD.
