With so much attention shifted to new trends, the world is witnessing how the crypto space has transformed every aspect to grow and establish a better economy.
One of the most innovative aspects of blockchain technology is the introduction of DeFi technology. When compared to traditional finance, it has pushed the financial industry forward with unprecedented innovation and flexibility.
A New Way of Financing
Yield farming is a new idea in the crypto realm that has captured the interest of many crypto fans and is the best option if you want to invest in specific cryptocurrencies and make a lot of money.
DeFi was sparked by the demand for a transparent financial system. It’s a blockchain-based idea that enables customers to have advanced and flexible capabilities while lowering the operational risk associated with traditional finance.
Another appealing feature of DeFi is the revenue created by multiple platforms, which pay out over $1 billion each day to yield farming participants and show no signs of slowing down.
According to data compiled from CoinMarketCap, the total value of the liquidity pools that were locked in yield farming projects in March 2021 exceeded 13 billion dollars.
In this article, we will explore what DeFi yield is and shed light on how DeFi Yield works on Fima pools, Defimable’s business pool.
All You Need to Know about DeFi Yield
Yield farming is a method of profiting from crypto investments. In DeFi yield farming, people stake or lend their crypto assets within DeFi protocols to generate substantial returns in the form of interest, incentives, or new coins.
The term “farming” refers to the considerable interest generated by various DeFi protocols’ liquidity. In addition to rewards, DeFi protocols give out tokens that show how much of the liquidity pool each user has. These tokens can be moved to other platforms to make more money.
Both the lenders and the borrowers enjoy the dividends of yield farming. Borrowers searching for margin trading will find a liquidity pool useful, while lenders can invest their idle digital assets in their wallets; thereby creating passive income.
In a DeFi environment, yield farmers act as banks, lending money to anyone who wants to use tokens to make the most money. Everything in the ecosystem is run by smart contracts that use the blockchain to connect borrowers and lenders as well as manage investor rewards.
Terms in DeFi Yield
Before we proceed to learn how DeFi yield works, it is important to understand the following terms:
Liquidity
This refers to the conversion of assets to cash. The market becomes competitive in the crypto space when assets are bought or sold.
Liquidity pool
The term “liquidity pool” refers to a collection of tokens or assets that provide users with higher returns than money markets. They are smart contracts that hold or lock up assets to facilitate trade by providing a large amount of liquidity. Different platforms can use these pools to provide the required liquidity in different cryptocurrencies. To work properly, liquidity pools require liquidity suppliers. On Defimable, we make this happen on Fima Pools.
Liquidity providers invest in liquidity pools to benefit from the DeFi platform’s benefits. The fees collected by DeFi platforms are used to fund these rewards or earnings. Some liquidity pools give out several tokens as a prize. These reward tokens are then placed into other liquidity pools, where they may be used to win even more prizes.
Liquidity pool providers
Without liquidity suppliers, yield farming isn’t possible. Liquidity providers are consumers who put their money or assets into a pool of money. They are also known as “market makers” since they provide the goods and services that buyers and sellers require to trade. The assets in liquidity pools are lent using a smart contract, which was developed and launched on the DeFi blockchain platform and contains a buyer and seller agreement.
DeFi Yield on Defimable: How Fima Pools Work
Now that we’ve understood the basics, let’s consider how everything plays out on Fima pools.
Fima pools enable enterprises to pool their assets, like trade invoices, warehouse receipts, real-estate loans, and more, and sell them to DeFi investors. For DeFi investors, these assets produce a steady dividend.
Here’s a breakdown of how everything plays out in Fima Pools:
Stage 1
Smart contracts act as the liquidity pools at this stage. This is where providers deposit their assets. Investors can earn stable currency by subscribing to companies with their FMB tokens. The number of tokens you earn depends on how many FMB tokens you subscribe to the pool with. This is done to ensure that all users have a fair and equal chance to benefit from the businesses’ offerings.
Stage 2
Users need to hold the minimum number of FMB tokens required to subscribe to any of the pools. Subscriptions are available for a set amount of time, usually less than three days. So, if you come across a pool that looks interesting, you need to have the required tokens in your wallet.
Every pool is based on a real-life company. When you subscribe to any pool, you are directly giving liquidity to that business in exchange for a piece of its profits.
Stage 3
Once you’ve signed up for a pool, you’ll receive an NFT as a receipt for your membership. The value of your subscription and the predicted yield are both stored in this NFT. Any time you choose, you can sell your NFT.
Stage 4
In this stage, the market makers are rewarded for their willingness to put their assets in the pool. Simply wait for the asset to mature and then click the “unsubscribe” button on your NFT to cancel your subscription. Your subscribed FMB tokens and yield in BSUD (stablecoin) will be delivered automatically. A normal unsubscription cost in FMB tokens will be applied to your account.
Practical Scenario
Now that we know the different stages involved in Defimable yield farming, let’s put everything together and consider a practical scenario.
Don’t forget, Defimable makes it easy for businesses in Africa to have access to working capital (a.k.a money they need to stay in business). FarmBit makes this possible by opening Business Pools, which are funded by investors on the Defimable platform.
The Defimable “investors” are those that have the FMB token ($FMB). When the pools mature, the business that the pool belongs to will get the credit they need while the investor will earn a percentage yield.
If you are a business owner and you want to open a pool on the Deformable platform, you will need to give a discount on the receipt that you want Defimable to fund.
For instance, let’s assume you are expecting a payment of $100,000 from your customer but you need quick access to funds. You can give Defimable that receipt for $80,000. Defimable will then give you the $80,000 while the platform gets the original $100,000 whenever the payment lands.
Investors that helped in funding the $80,000 you get (i.e. the liquidity pool providers) will earn a percentage profit from the $20,000 discount that you give Defimable.
So, it’s a win-win situation; Defimable saves you time and gives you the money you need to stay in business, while Defimable investors earn some profits from funding the pool.
How to Figure Out What Investors Will Earn
You may be wondering how much you may earn (as an investor) now that you understand how yield farming works. Defimable uses the APY metric (Annual Percentage Yield). The Annual Percentage Yield (APY) is the rate of return you receive on your investment. Compound interest is critical in this situation.
Wrapping Up
It’s important to remember that DeFi yield farming isn’t immune to losses in capital. Virtual transaction protocols between two anonymous participants are used in the farming transaction, and there is no central enforcement authority. Also, financial data is at risk of being lost if a system error occurs.
Nevertheless, Defimable is a fantastic option for businesses looking to get working capital.
Check out our whitepaper to learn more about Defimable yield farming and how you can make your money work for you.
