What Is Yield Farming In Cryptocurrency?

Now yield farming in cryptocurrency can be a vague term, over-complicating a simple process with techno-lingo, so that I will describe yield farming in cryptocurrency from my perspective as a new crypto yield farmer.  

Note that this post is based on my understanding and experiences at Crypto Yield Farming.

K.I.S.S. What Is Yield Farming?

Yield Farming is where you try to convert your principal (money you deposit) for the maximum return in the form of ‘interest,’ or returns.

Yes, using an old-fashioned interest-bearing savings account is considered to yield farming.  

You are farming, planting/depositing your money into a lending institution to collect the yield/interest in return. This process is Yield-farming.

Your goal is the reap the most yield from your seed money.

What Is The Lending Version of Yield Farming?

This method is how your deposited money is used to generate additional cash, of which a portion is returned to you as interest on your original deposit.

If you ever watched “It’s A Wonderful Life,” during a bank run, the character George explained that the bank customers’ deposited money wasn’t sitting in the bank but was loaned out to the bank’s borrowers.  

A bank takes your deposited money and uses it to lend it to borrowers who are charged interest in return for using the loaned money while repaying the loan. This interest is collected, and a small portion is shared with the original depositors.

Using typical numbers you hear on T.V. OR see in regular local bank advertisements, they advertise interest on loans like 3.5% while offing interest on savings accounts of 0.1%.

The bank takes your deposited money, loans it out at a higher rate, and shares a small portion of the money loaned with you at a lower rate. 

Now you see this, you realize that the bank isn’t using its own money but yours, and you get small returns from the higher return the bank is charging the borrower.

What Is Wrong With Yield Farming From A Standard Bank Savings?

This mechanism has been around for years, where banks needed your money to lend out money, which resulted in a better interest rate(yield) than you see today.

Today, with the past lock-downs, we watched how the Federal Reserve printed money in bulk, and soon banks had so much money; they didn’t need your deposits to make loans to borrowers.

This change in surplus in printed money has resulted in lower returns on regular savings accounts, and many offer no interest returns today.

This is where Crypto comes in.

Where Can You Still Earn A Yield On Deposits?

Again this is where Crypto comes in.

Now unlike regular banks, good crypto-lenders must do more than print cryptocurrency. So to add cryptocurrency to their lending pool, people have to deposit cryptocurrency.

This cryptocurrency is either directly deposited, or money is deposited that is converted into cryptocurrency.

Since crypto-lenders need depositors still, they are willing to share a higher portion of their interest earned from lending your Crypto with you.  

Because of this, typical old-fashioned yield farmers have moved toward crypto yield farming for higher returns.

So Yield Farming In Cryptocurrency Is Just A Crypto-Savings Account?

It’s how I look at it.  

As an average person, I keep a little money readily accessible, not sitting around on my mattress but in a bank. With hopes, the money earns a slight interest in the process.

With the rising inflation rates eroding the value of my money, and almost no interest earned in regular bank savings accounts, I was losing money having it sit around for an emergency.

So I became a crypto yield farmer.

I Yield Farm In Cryptocurrency.

I use a couple of platforms for earning higher returns on my deposited money than the basic bank savings account.

I use BlockFi(Dec 2023 Update: Exiting: BlockFi Interest Account Review ) and “Outlet Finance” (Dec 2023 Update: Is Outlet Finance Legit Or Not? Yes, But It Is Gone.)

BlockFi takes my deposited money and converts it to Gemini dollars (GUSD), and my money sits in the account, collecting interest.  

In Outlet Fiance, I don’t see a conversion, but Outlet also is a crypto-lender, and again, I earn interest on my deposited money.

Why I Yield Farm In Cryptocurrency Instead Of US Currency

I get almost nothing of a return in any money I put into my regular bank savings account, and there also are minimum balances. So my US dollars sit there and lose value with these high inflation rates.

Now in my crypto accounts, BlockFi and Outlet, there is no minimum balance, and I get a decent rate of return, sometimes higher than inflation. 

So my money remains liquid, easily accessed, and avoids losing value but sometimes earns value with time.

So What Is Yield Farming In CryptoCurrency?

It’s a way for an average person like myself to save money in a higher-earning interest-bearing account compared to a regular bank’s savings account.

Tom, Growing His Passive Income Generators.
Myself with an interesting Bull Sculpture.
Notice: No Lambo’s. :/
Hi I’m Tom, A Blogger And A PIG Farmer.

PIG Farmer as in I grow Passive Income Generators(PIG’s).

I’ve been playing with stocks, mutual funds, and options for decades, as well as always working on my side hustle stacks.

Unlike what you read online, I’ve yet to find a way to get rich quickly. Get Rich Quick isn’t happening for me.

My journey has been long and continues. I hope to have so many PIGs I can stop working at my current job and volunteer as a medical worker overseas. 

Still waiting, but getting there. I still am a family man, and while on this Journey of Growing PIGs.  

I wanted to share my adventures(ups and downs), hoping you will contribute with your feedback and comments.

Fun Fact: In my spare time, I am a Band-Dad!

Leave a Comment