Farming roles explained
Last updated
Last updated
The world of DeFi is moving fast, meaning there are constantly new products being developed. They come with their own user roles and terminology, some of which stick and then become the default within the industry.
With so many articles, guides, and whitepapers, you may feel overwhelmed at conflicting definitions that are out there — which is exactly why PembRock puts a premium on simplicity. Step-by-step we aim to give you a DeFi education in plain English, and what better place to start than with the main roles users can undertake on our platform.
By the end of this quick explainer, you’ll have a concrete understanding of the difference between lenders, liquidity providers, and farmers.
Lending is one of the easiest and safest ways you can put your money to work within PembRock. It involves simply lending your funds which will be used by liquidity providers and yield farmers.
What do you get in return? A dependable return from borrowing interest — unlike farmers, lenders cannot be liquidated, so your funds will never be at risk.
Liquidity providers are those that deposit in liquidity pools. While lenders often lock up one asset at a time, funding a liquidity pool involves depositing two coins*; the amounts of which need to be of equal valuation.
For example, if you have $1000 you would like to add to a NEAR-USDT liquidity pool, you would need 500 USDT and 150 NEAR (at the price of $3.33 per NEAR) — an exact 50/50 split.
In return, the liquidity providers receive liquidity pool (LP) tokens, representing the equal split of the two assets in the pool. The tokens automatically earn fees proportional to the share of the pool, often paid out in the same LP token, which can usually be redeemed at any time. APY can vary drastically depending on the platform used and the assets provided.
Farming operates like a supercharged liquidity provision, earning those who deposit tokens extra rewards. As illustrated in our graphic below, yield farmers are also liquidity providers, depositing in pools and receiving LP tokens; however, then there is another step — these LP tokens are put into a farming pool, where incentives include high APY, airdrops, the provision of governance tokens, and more.
If you think farming sounds complicated, you’re not wrong. There are many different protocols with varied layouts and functionality, meaning yield farming can be difficult. PembRock aims to make it simple, with an intuitive interface and a range of guides to help you access great returns — without having to navigate all the complexity.
With a world of opportunity in yield farming, we allow crypto holders to leverage their assets by up to 3x. This means they can farm with three times the crypto for greater rewards and execute strategies such as shorting a coin within a position, which isn’t possible to do without leverage.
To read more about our strategies for leveraged yield farming, see our other doc.
*The majority of liquidity pools are made up of two coins; however, products like SAUCE pools on Ref.Finance (USDT/USDC/DAI) require the liquidity provider to add a certain amount of all three assets.
