Anyone buying bitcoin or any of the other 2000+ cryptos in existence would invariably need to use a wallet, for storage. Simply put, a crypto wallet stores data that proves the existence of your cryptocurrency. The wallet can be used to send and receive crypto.
All wallets share a common element; KEYS. For security, a wallet usually comes with a private, and a public key. A crypto wallet is the program that stores your public address and private key. The keys are used to make transactions on the blockchain or to transfer funds to another account.
Wallets can be broadly divided into two categories, hot and cold wallets. Hot wallets basically mean the wallet is connected to the internet and while it’s quite easy to make transactions with them, they’re very prone to attacks. Cold wallet, on the other hand, means a wallet is not connected to the internet and as such, safe from cyber attacks.
However, the big question that remains among a vast population of crypto users, is how to create a crypto wallet and more importantly, choosing the right wallet as per custody of private keys.
Crypto wallets are divided into two classes according to the way they work: Custodial and the Non-custodial wallet. While there are tons of applications that offer crypto storage in wallets, it is important for a user to first decide if they want to keep their funds on a custodial exchange, or on the contrary, non-custodial exchange. We would be uncovering the basics, as well as the pros and cons of both wallet categories.
A custodial wallet is one where a third party entity offers to protect a user’s assets within their system, taking full control over the funds while a user only has to give permission to send or receive payments when the need arises. The third-party entity (usually a crypto exchange) manages all the funds with one requirement— users won’t be able to perform any transaction without their involvement.
Some very popular examples are Blockchain wallet, Coinbase, Trust Wallet and FreeWallet.
A non-custodial wallet is mostly a piece of software on your device or computer for crypto storage. Here, the blockchain allows you to be your own bank. Only the user has access to the private keys associated with their account, thereby, giving such a user total control of their crypto holdings. Example include: Guarda wallet.
Custodial vs non-custodial wallets
Control over funds: “If you don’t possess your private keys, you don’t own bitcoin”. If you are familiar with crypto Twitter, you must have come across the quote.
In bitcoin, the idea is to give users complete control over their money. However, with custodial wallets, the whole point of the idea is lost with the exchanges taking full control of the funds on behalf of the user.
Since all details associated with a wallet relies on the user, users have total control of their non-custodial wallets and do not need to look up to any third party to manage their funds. In the case of custodial wallets, the third party entity has the freedom to take actions on users’ funds which could include freezing stored amounts. Funds stored in non-custodial wallets cannot be seized by a third party such as the government or financial institutions.
Security: The level of security is low in custodial wallets and they’re often more prone to cyber hacks than with non-custodial wallets. In the case of non-custodial wallets, the whole information including the sensitive ones remains with the user, and this reduces the risks of a user’s data getting stolen. Exchanges are usually bigger targets for hackers.
Backup possibility :Custodial wallets usually can get backup facilities from the central authority that manages the wallet. So, in the case of data loss, a user can easily request for a backup. It’s the contrary with non-custodial wallets. Being in charge of your security comes with great responsibilities. A user needs to take care not to lose any sensitive information that might deny them access to their wallets.
Accessibility: Exchanges that provide custodial wallets, strictly recommend a KYC (Know Your Customer) for users. This implies that a user cannot gain access without proving their identity. This alone, somewhat negates the basic principle of cryptocurrency “anonymity”. Non-custodial wallets do not require the confirmation of a third party to perform transactions which makes it easier to enjoy instant transactions.
Types of cryptocurrency wallet
Choosing a storage solution won’t be so difficult having understood the difference between a custodial and non-custodial wallet. There are lots of applications that offer crypto storage in wallets. Your options include keeping your funds on a hardware wallet, software wallet or a paper wallet.
A hardware wallet is a unique type of Bitcoin wallet that stores the user’s private keys in a secure physical device that acts like a flash drive to store your private keys. It is considered to be one of the safest and convenient options and a very great option for users not so well versed in coding.
In hardware wallets, cryptocurrency are kept offline yet, are always readily available when needed. Whenever you need to send your crypto, you simply connect the wallet to any device, enter your PIN-code and send funds. You can disconnect and keep the hardware in a safe place again as soon as the transaction is complete. Even during transactions, hardware wallets don’t reveal private keys. For safety, the transaction is usually completed with a digital signature signed by the user. One popular example of a hardware wallet is Ledger Nano S.
A mobile wallet is a convenient on-the-go solution for bitcoin storage. The wallet runs on an app on the users’ device and stores the private keys directly on the app. This type of wallet is best for those actively using Bitcoin daily paying for goods in shops.
Mobile wallets allow users to make purchases from their mobile devices and can facilitate payments in physical stores via a near field communication(NFC) which usually involves scanning of a QR code.
Although it’s considerably secure and its feature involves convenience and easy accessibility, it could be dangerous in case of a user losing their device to thieves.
Desktop wallets function very similarly to mobile wallets, only with one big difference. They tend to be more advanced, as they come with more technically complicated features that allow for more flexibility.
However, it is more dangerous setting up a desktop wallet, especially for beginners. New users are more susceptible to accidentally installing a fraudulent version of the legitimate software wallet. Examples of a desktop wallet are MultiBit, BitcoinCore, and Electrum.
Online wallets allow a user to visit a website where they can interact with the blockchain by decrypting their private keys through a variety of options. They usually have a very simple installation process, quite easy to use, and more secure than an exchange. However, users’ private keys are also located in the system which makes funds vulnerable to theft.
Paper wallet is basically an offline mechanism for storing Bitcoin. It’s a primitive but very secure crypto wallet type. It’s usually a document that contains a user’s public and private keys often printed in QR code. You can scan and then add the keys to a software wallet to make transactions. Paper wallets can be generated using services like BitAddress. Its biggest advantage is that keys are stored offline which is expected to provide 100% protection against cyber attacks.
However, necessary precautions must be taken that there are no risks of spyware monitoring activities. Apart from this, a user needs to take extra care with the papers as they are delicate and very prone to damage. Loss of the papers or any form of damage could lead to lack of access.
Steps to creating an ethereum wallet
After you must have chosen which type of crypto wallet is suitable for you and you know if you want to manage your coins using your phone device, a computer, or a physical hardware device, you can proceed to set up your wallet on any crypto wallet of your choice.
We’ll be giving an example on how to set up an Ethereum wallet on one of the most widely used mobile wallets, TrustWallet, a multi-wallet crypto wallet. All you need to do is to install the app and go through the setup steps on the app.
- Download TrustWallet from an official source.
- Launch the app. You’ll see options on whether to open a new wallet or import from an existing one. Since you’re setting up a wallet for the first time, you should go ahead and click on the “create a new wallet”
- You would need to accept the terms of usage. Click on the tickbox right after the terms and condition and click “continue”
- You would be given the key to your wallet, that’s the recovery seed phrases which you would have to keep very safe.
- The next step is to verify the security phrases. You would need to select the words in the correct order to complete the verification process
- After you must have completed all these steps, you can be assured that your wallet is ready. You will be redirected to the main wallet screen.
This process can be repeated for Bitcoin and every other coin supported by the wallet.
Coinomi is another popular multi chain crypto wallet with millions of users. We’ll be discussing the steps to creating a bitcoin wallet on the mobile/desktop wallet.
Steps to creating a bitcoin wallet
- Download Guarda wallet from the app store and install it
- We’re using Guarda because it’s a non custodial wallet and have a very good support system.
- Once installed, open the wallet, click on the option to “Create a new wallet”
- Select and copy the recovery seed. If you want copy your bitcoin wallet specifically, you can do that you have created the wallet.
- Make sure to save the recovery seed you just copied in a notepad on your phone or desktop, as that would be your security code and your only way to recover your wallet.
- Create a strong password comprising of alphanumeric characters (alphabets – upper and lower case, special characters and numbers)
- Confirm that you have kept your recovery phrase safe by ticking the box “I have safely stored my recovery phrase”
- Select the coin you want to add to the wallet, Bitcoin in this case
- Accept the terms of service to proceed.
- After you must have completed these steps, you have successfully created a Bitcoin wallet on Coinomi.
A quality wallet is crucial to keeping your crypto assets safe. However, the best approach largely depends on how a user prefers to store their cryptocurrencies. Nevertheless, once properly informed, you’ll be able to make the right choices.
How to Approach Cryptocurrency Investment in 2021
Years have gone by and many cryptocurrencies have come to be. Speculators and Investors now see cryptocurrency as an alternative to universal currencies like the dollar, euro, and naira. Today, virtually everyone wants to learn how to invest. If you’re looking to invest in cryptocurrency, this article is for you.
Before diving into the crypto journey, it is important to be aware of what is at stake. For everyone who has acquired immense wealth trading crypto, there is also someone who has lost massive finances while trading. Nevertheless, if you’re still focused on cryptocurrency investment, keep reading.
Only Invest Money You’re Prepared To Overlook
Needless to say, you should only invest money you can afford to lose. The main purpose of any form of investment is to add to your fortune. If an individual invests his entire savings, and the said investment doesn’t work out as planned, that is a big loss. So, when investing in Cryptocurrency, whatever amount you put in is completely up to you, but it should only occupy a small percentage of your income, such that, if there is a hiccup, you’re not left completely stranded.
Make Your Choice
Choose your cryptocurrency or cryptocurrencies. There are tons of cryptocurrencies to select from and while it’s fine to make good with just one, it’s also not a bad idea to invest in as many as you want, as long as you’re not spending above your means. That way, you gain some, and you lose some. However, if you would rather invest in one, Bitcoin seems to be the most reliable, followed closely by Ethereum.
A downside to trading in cryptocurrencies is that you can’t just walk into a bank or an investment brokerage firm to get them. You have to find sites dedicated to cryptocurrency exchanges. There are several sites like eToro, Coinbase, Gemini, Binance, etc. dedicated to this cause.
Save Your Cryptocurrency
Cryptocurrency is mainly stored in either a hot or cold wallet. This wallet permits users to keep and reclaim their digital assets. A user can store cryptocurrencies like Ethereum in their wallet and from there, use it to perform transactions. You have access to your wallet through a public key and a private key. The public key is referred to as your cryptocurrency address and it can be used by the other party in the transaction, while the private key is for you alone. It is important to have both keys to finalize a transaction. In addition, your wallet provides a history of all your transactions, as well as your present balance.
Safeguard Your Cryptocurrency
Keeping your cryptocurrency secure after buying it is principal. To encrypt your data, make use of VPNs, like NordVPN and ExpressVPN. These help in securing your transactions and making sure that your purchases are kept a secret from prying eyes.
Just as with other forms of investment, in cryptocurrency investment, it is important to focus less on what is being said, but rather carry out your own research and study the market to the best of your ability. Do your own fact-finding instead and select the strategy that works best for you. This will help you to have a clear picture of what it is you’re jumping into.
Bitcoin, Cryptocurrency-Maana Na Jinsi Inavyofanya Kazi
Sehemu ya kwanza
Miaka kuku na moja iliyopita, neno “cryptocurrency”lilionekana la ajabu kwa wengi. Hata Sasa hili neno limekuwa likisikika mara kwa mara lakini bado watu wengi wamekuwa hawajui linamaanisha nini hasa. Ni neno lililozoeleka Kama fedha za mtandaoni ama Bitcoin.
Je fedha za mtandaoni ni nini hasa?
Watu wengi Wana uelewa potofu juu ya fedha za mtandaoni, kwa baadhi ni neno linalohusishwa na wizi na njia zisizo halali za kifedha, kwa wengine hili neno limekuwa msamiati watu wakitumia kutengeneza fedha. Cryptocurrencies inaweza kuelezewa na kueleweka kwa njia rahisi. Uelewa wa mahesabu yake huchukua mda mrefu Sana. Ingawa, kuwa na uelewa kidogo juu ya mfumo wa thamani yake Ni kitu pekee kinachohitajika ili uweze kutumia.
Je Cryptocurrency ni nini?
Cryptocurrency ni fedha ya kimtandao iliyo dhahiri au halisi ambayo inaweza kutumika kubadilishana au kufanya manunuzi. Inaweza kuonekana Kama fedha ya kawaida, lakini ambayo mtu hawezi kushika. Ili kupata uelewa sahihi wa dhana hii,uione kama hawala ya fedha-naira ya Nigeria, Cedi ya Ghana, dola ya Marekani,Shilingi ya Kenya au Rand ya Afrika kusini. Cryptocurrencies inafanyanishwa na aina hizi za hawala, lakini ikiwa na tofauti kuu-cryptocurrency ni ya uhalisia.
Tofauti na hawala ya kawaida, Cryptocurrencies hazimilikiwi na eneo ama nchi Fulani, kwahiyo zenyewe zinaweza kutumiwa na mtu yeyote, popote (Ingawa, uhalalishaji wake ni hafifu kwa baadhi ya nchi).
Kitu gani kinafanya ziwe salama?
Cryptocurrencies zinadhibitiwa na fumbo (cryptography). Fumbo Ni njia ya kulinda ujumbe ndani ya mtandao. Katika kipindi ambacho biashara nyingi na miamala mingi imehamia katika mfumo wa digit, fumbo (cryptography) inabeba jukumu muhimu ya kulinda taarifa ambazo zinakuwa zinabadilishwa katika tovuti mbalimbali duniani. Fumbo inafumba taarifa au jumbe ili iweze kumfikia muhusika pekee (mlengwa). Cha kushangaza fumbo haikuanzia kwenye mitandao. Ni mfumo ulioanza kutumika tangu miaka ya 1900 Kabla ya Kristo.
Jinsi gani mfumo wa fumbo (cryptography) unavyofanya kazi na fedha za mtandaoni.
Kitu cha muhimu katika mfumo wa fumbo kwenye nadharia ya fedha za mtandao ni suala la saini ya digiti. Saini mara nyingi inatumika kuonesha uhalali katika dunia ya mtandao na vivyo hivyo ndivyo inavyotumika katika ulimwengu wa digiti. Saini itakuonesha mmiliki wa hati, hakitakiwi ighushike, na pindi hati ikisainiwa saini haiwezi kuondolewa. Hivi ndivyo saini za kidigiti hufanya.
Hata hivyo, japokuwa saini ni njia Bora ya kuonesha uhalali, bado zinaweza kughushika. Ili kuondokana na changamoto hii, mfumo wa fumbo unaenda hatua moja zaidi kwa kuongeza funguo katika sahihi hizi za kidigiti. Funguo hizi zinafunga hati ili kuhakikisha macho yanayochungulia kushindwa kuona sahihi.
Kuna mahesabu magumu mno katika mfumo wa fumbo ambazo zinasaidia katika fedha za mtandao hivyo huzifanya fedha hizo kutumika kwa ufasaha.
Historia fupi ya Bitcoin na fedha za mtandao
Flooz, Beenz na DigiCash ni Kati ya walionza mapema kutumia fedha za mtandaoni mnamo miaka ya 90, kwa bahati mbaya wote walishindwa. Kwa matokeo hayo, kushindwa kwa majaribio yao ya kwanza kuhusu fedha za kidigitali, kulifanya wazo zima kupoteza muelekeo na hakukuwa na kumbukumbu ya majaribio yaliyorekodiwa tena tangu kipindi hiko.
Kisha akaja Satoshi mwaka 2009 mtaalamu wa kompyuta asiyejulikana, aliyetumia jina la Satochi Nakamoto, alikuja na wazo la Bitcoin. Alielezea Bitcoin kuwa haipo chini ya mamlaka yeyote ambayo haikuhitaji mtu yeyote wa katikati. Kutuma fedha ilikuwa rahisi Kama kutuma faili kutoka kwenye simu moja kwenda kwemye simu nyingine.
Hali ya fedha ya mtandaoni kutokuwa chini ya mamlaka yeyote ni moja ya sifa yake bora zaidi. Kama ilivyo aina ya Mitandao mingine ya malipo ilitakiwa ishughulikie tatizo la kulipia kitu mara mbili. Kulipia Mara mbili ni kitendo Cha kitapeli Cha kutumia kiasi kile kile Cha fedha Mara mbili. Njia ya kawaida ya kutatua tatizo hili ni kwa kutengeneza mfumo ambao utatunza rekodi ya kila muamala na kumbukumbu ya salio. Hata hivyo, mfumo hu unahitaji mtu wa tatu ambaye atakuwa na taarifa sahihi baina ya watumiaji wawili. Bitcoin za Satoshi zinahitaji sehemu maalumu ha kutunzia kumbukumbu. Inatumia mfumo wa kutunza kumbukumbu ambao umetawanywa unaojulikana kama blockchain. Hii inaondoa haha ya kuwa na mfumo mmoja wa kuhifadhia kumbukumbu za miamala. Blockchain ni mfumo wa kumbukumbu ambao unaacha nakala ya kumbukumbu kwa kila mtumiaji. Mabadiliko yeyote yanayofanywa katika mfumo huu huweka kumbukumbu hiyo kwenye nakala ya watu wote, hivyo basi kufanya mtu mmojawapo asiweze kubadilisha taarifa kwenye kila kumbukumbu.
Ndani ya mtandao wa fedha za kimtandao kama Bitcoin, watumiaji wanathibitisha mialama. Watumiaji wanafanya hivi kwa kutatua mfumo mgumu uliowekwa.
Kwahiyo, namna gani tunaweza kutumia fedha za mtandao?
Kama fedha nyingine,fedha ya mtandao inaweza kutumika kulipia bidhaa na huduma. Mnamo tarehe 22 mwezi wa tano mwaka 2010, mwanamme mmoja kwa jina la Lazlo Hanyecza alilipia pizza yake kwa Bitcoin 10,000. Hii ilikuwa Mara ya kwanza kwa fedha ya mtandaoni kutumika Kama njia ya kufanya manunuzi. Hii siku inajulikana Kama siku ya Bitcoin pizza. Leo, Lazlo angelipia dola 231,000 kwa ajili ya hiyo pizza.
Kuna wafanyabiashara wengi ambao wangekubali fedha za mtandaoni Kama malipo. Katika maduka ya apple, fedha ya mtandaoni imethibitishwa Kama njia ya malipo. Katika maeneo mengi ya Afrika Kama vile Nigeria, Ni njia Bora ya kufanya malipo nje ya mipaka.
Ukiachana kutumika Kama njia ya malipo ,fedha za mtandaoni pia zinatumika Kama njia mojawapo ya uwekezaji. Mtu ambaye aliwekeza Bitcoin moja mwaka 2010, kipindi ambacho Bitcoin ilikuwa chini ya dola moja, angeweza kupata $ 18,000.
Ingawa Bitcoin inaweza kuwa Kati ya vitu vya thamani ndani ya miaka kumi ni muhimu kujua kwamba fedha za mtandao zinabadilika haraka Sana, hivyo kufanya uwekezaji wake uwe wa hatari.
Bitcoin, fedha ya mtandaoni iliyo imara zaidi ilishuka kwa ghafla Sana mwaka 2017. Thamani yake ilipanda Sana hadi $20,000 na ikashuka ghafla Hadi $3000. Hata hivyo, fedha hii imeendelea kupanda juu Sana. Kwa Sasa ina thamani ya $23,000 wakati wa kuandika makala hii.
Ushuhuda kutoka kwenye kazi za uvunaji
Fedha za mtandaoni pia zinaweza zikavunwa. Uvunaji ni muhimu Sana kwa fedha za mtandaoni, hasa kwa wale wanaotumia mfumo wa POW. Wavunaji wanathibitisha muamala ili iweze kuwekwa katika kumbukumbu. Kwa kufanya hivyo, wanaongeza huduma za utunzaji taarifa za miamala. Wavunaji wanatatua mafumbo mbalimbali ya fedha za mtandaoni. Mafumbo yanazidi kuwa magumu kwa fedha maarufu kadri siku zinavyozidi kwenda. Siku hizi mahesabu ya Hali ya juu mno yanahitajika ili mtu aweze kufanikiwa kuvuna. Kwa kila fumbo litakalotatuliwa mvunaji anapewa zawadi ya Bitcoin. Uvunaji ni kati ya njia inayoifanya sarafu kuzunguka. Miaka inavyozidi kwenda kiwango Cha zawadi kwa wavunaji kimekuwa kikipunguzwa ili kupunguza mzunguko wa fedha za mtandaoni. Hii pia imekuwa sababu ya Bitcoin kuongezeka thamani. Wavunaji walikuwa wanapewa zawadi ya Bitcoin 50 hawati fedha hii inaanza, Sasa hivi zawadi Ni Bitcoin 6.25. Hata hivyo zawadi hii itaendelea kushika mda unavyozidi kwenda. Bitcoin milioni mbili tu ndizo zilizobaki kuvunwa. Kuvunwa kwa hizo kutafanya kuwe na na Bitcoin milioni 21 katika mzunguko.
Uwekaji wa dau uhitaji waweka dau wabainishe kiasi Cha dau.
Ukiacha uvunaji, fedha nyingine zinatumia mfumo wa dau. Bitcoin inahitaji mvunaji kuthibitisha muamala, frledha nyingine za mtandao hazihitaji hivyo. Mfano Ni ethereum 2.0, fedha hii ikiwa ni ya pili kwa ukubwa ukiacha bitcoin. Ethereum inahitaji kuthibitisha muamala unaotokea ndani ya mtandao wa ethereum. Wahakiki wanahitaji dau la angalau ethereum 32 ili kukupa haki ya kuhakiki.
Uhakiki hatuhitaji mahesabu ya Hali ya juu Kama uvunaji. Kompyuta ya kawaida inaweza kuhakiki.
Uwekaji wa dau, hata hivyo haujaanza bado kutumika katika mtandao wa ethereum. Ni mfumo mpya ndani ya mtay ambao utaanza kutumika mnamo mwaka 2021.
Kujifunza kuhusu fedha za mtandao ni hatua ambayo inaanza kwa kuzimiliki kwanza. Kusoma maoni katika mitandao ya kijamii kutachangia uelewa zaidi. Fuatilia akaunti mbalimbali za mitandao ya kijamii na taarifa mbalimbali ili kufanya maamuzi sahihi kwenye fedha za mtandao
How Africans Can Leverage On Decentralized Finance (DeFi) For Passive Income
In African countries, the lockdown effect of the COVID-19 pandemic has totally changed the way we live, work and interact with each other. This is proof that the decentralized Web 3.0, the Fourth Industrial Revolution, Artificial Intelligence, Cryptocurrency, and Blockchain are already here- and in fact, here to stay.
Satoshi Nakamato created Bitcoin with the goal to serve as an alternative to fiat currency, but Decentralized Finance (DeFi) is taking it a mile further. As the name implies, DeFi is designed to provide a trustless and permissionless system which eliminates the need for middlemen, with a special focus on a community-driven financial services platform.
Decentralized finance (DeFi) has been one of the hottest topics in the crypto space, with a report from DeFi Pulse showing about $45.54B in Total Locked Value (TVL), with Market Dominance of 16.67% on different DeFi protocols at the time of writing this article. This is in sharp contrast to the world of Centralized Finance (CeFi) where there is high governance, lack of transparency, and no absolute control over funds.
Decentralized finance (DeFi) is here to innovate and deliver an alternative to the existing faulty banking mode, and disrupt traditional financial intermediaries. Also, it is not only targeting the banked, but also the unbanked- a population that is estimated to sit at around 60% in Africa, according to Microsoft.
Decentralized finance (DeFi) provides a lot of opportunities such as earning a passive income with little or no stress, either you choose to connect to DeFi dapps, or apps, via decentralized Web 3.0 platforms or simply through regular web interfaces.
In this article, we will take an adept look into the ways (such as staking, providing liquidity, yield farming, and lending) you can leverage on Decentralized finance (DeFi) products and services as an African for passive income.
It is a process of locking up your tokens and earning more of the same token (or another token, which will be specified by the platform) over an agreed specific period of time into a smart contract. It is similar to mining but uses less power and resource-intensive alternatives.
The locked tokens are referred to as stake, which usually involve keeping the stake in a suitable wallet (either online or offline) and this stake is used to perform several network functions such as validating transactions, decentralization, maintenance of the network’s security etc.
Therefore, the individual that provided the stake will be receiving staking rewards which can be claimed daily, periodically or annually.
Decentralized exchanges (DEXs), such as Pancakeswap, Uniswap, Bakeryswap, and Julswap etc fully support swapping of token pairs such as BNB and BUSD. This is made possible by liquidity providers which provide the liquidity needed.
The liquidity providers (LPs) contribute the tokens into a smart contract, which will control the contributed tokens, which is referred to as a pool. When you provide liquidity on these DEXs, you will be rewarded with 0.3% from all swaps which will be directly proportional to your pool share. The more swaps are conducted via that pool, the more your rewards.
The major setback to liquidity providers is impermanent loss – when the liquidity provided into the pool, and the price of one of the pooled tokens fluctuates significantly compared to when they were deposited. To reduce this, liquidity providers are advised to choose highly liquid pools that contain less volatile assets, such as WBTC/ETH.
Also, to increase your rewards as a liquidity provider, make sure you analyse real-time data from liquidity provider (LP) aggregators. This will help you predict your potential future gains from various pools.
It is the symbiotic relationship between liquidity providers and DeFi protocols. The users are known as yield farmers, which provide the liquidity first on decentralized exchanges (DEXs). For providing the liquidity, they are rewarded with this form of token (LP tokens) which can be locked into Yield Farms, which are DeFi protocols.
The rewards come in more of the same token being farmed or with another token known as harvest. Yield farming is a good passive income stream, since the earning is from both providing liquidity and farming.
Yield farmers are expected to perform due diligence on the Yield Farms, before investing or farming their LP tokens. This is to ensure they are valid with no intention of “rug pulling” (stealing LP tokens, which will be used to withdraw liquidity from DEX pools) and externally audited by reputable firms.
DeFi lending platforms such as Aave, Compound Finance, Maker etc provide loans to individuals or business owners without any form of intermediaries or third parties. These platforms make use of smart contracts – DeFi lending protocols to enable interested individuals (lenders) to deposit their assets, which is referred to as money market.
The process is made possible, by the lenders sending their assets (either stable coins or tokens) to the smart contract, in which the assets will be available for borrowing.
These lending platforms pay the lenders an APY for providing and sending the requested assets into their smart contract. The assets sent by the lenders are therefore made available by the platform to the borrowers, in which they pay an interest when they return what they borrowed.
A portion of the interest is returned back to the lender with his assets provided. The process is controlled by a smart contract, which means the lenders can be rest assured they will receive their money back with interest.
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