What is Leveraged Yield Farming?
To understand leveraged yield farming, it’s important to understand regular yield farming. Here’s a short summary of each to get you started.
In a nutshell, yield farming is the act of lending your cryptocurrency to the most profitable platforms in order to earn the highest DeFi yields.
But why do DeFi platforms require users’ funds at all? It has to do with the use of Automated Market Makers (AMMs) to execute trades within an application. AMMs are a feature of many DEXes, and allow users to make token swaps near instantaneously.
The traditional order book model of matching buyers and sellers to execute a trade does not apply. All trades are regulated by algorithms written into smart contracts and drawn from pools of funds (liquidity pools). This is precisely where the user comes in, providing funds to make sure that there are tokens available to be exchanged.
Farmer provides tokens to a liquidity pool (an equal share of (usually) two different tokens locked in a smart contract).
Farmer receives LP (liquidity pool) tokens, representing their equal share of tokens within the liquidity pool. The longer they leave their assets in the pool, the more LP tokens they receive, based on the pool’s APY.
Farmer stakes these LP tokens within a farming pool, receiving extra rewards in the form of the protocol’s native-crypto (in PembRock’s case, this would be $PEM), a different cryptocurrency, or a governance token, which has its won value but can also be used to make decisions through voting within the protocol. In the governance case, the number of votes usually corresponds to the amount a farmer has staked, relative to the total amount of tokens.
The main difference between staking and yield farming is that the latter is defined by its mobility. Yield farming often involves the quick movement of crypto funds — either manually or through automated tools — to chase the highest rate of return, calculated by APY; however this is not a strict rule, and yield farmers who find a great protocol can reap fantastic rewards over a long period of time.
Leveraged yield farming is simply normal yield farming but supercharged! It is the practice of borrowing external liquidity to farm a larger amount of crypto, thus gaining the ability to get increased returns.
While many DeFi lending platforms still require users to overcollateralize (put up funds of a greater value than those being borrowed), our leveraged yield farming platform undercollateralizes, meaning: A lower barrier to entry. Fewer funds laying dormant. Greater rewards for users. PembRock gives farmers the opportunity to leverage their existing funds by up to 3x, taking advantage of great yield farming opportunities with a larger amount of crypto, while lenders get predictable and stable returns for providing these funds to the protocol.