School of PembRock
  • 🔥Welcome to PembRock Finance
  • ‼️Risks
    • Risks for Farmers
    • Risks for Lenders
  • What is Leveraged Yield Farming?
  • About PembRock
    • How PembRock Finance Works
    • Ref Finance integration
    • User Story: Lender
    • User Story: Farmer
    • Audits
    • Borrowing Interest Rate on PembRock
    • Parameters & Key Figures
  • Roadmap
  • đź’°Tokenomics
  • âť”FAQ
  • Quick Links
  • Education
    • How-To Guides
      • How to create a NEAR wallet
      • Lending: Step-by-step guide
      • Farming: Step-by-step guide
      • How to buy PEM
      • How to Stake PEM & Join DAO
      • How to claim $PEM token on Meta Yield
    • NEAR Protocol Introduction
    • General DeFi Investing
      • What Is DeFi?
      • CEX vs. DEX
      • How to Become a Liquidity Provider (LP)
      • Understanding Impermanent Loss
      • Token Correlation
      • The Importance of Diversification
    • Leveraged Yield Farming Education
      • Farming roles explained
      • Providing Liquidity to DEXes — Key Benefits
      • Undercollateralization: The Key to Leveraging
      • Yield Farming Myths Busted!
      • Key Leveraged Farming Strategies
      • How to Avoid Getting Rekt in Leveraged Yield Farming
      • Calculating Leveraged Yield Farming Returns
      • The Power of Hedged Positions
      • The Big Short—PembRock Style
      • Yield Farming with Leverage: How to Maximize Returns
      • Useful Links & Tools
    • Yield Farming Glossary
  • Legal notes
    • PembRock Finance Cookies Policy
  • pembrock.finance
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  • What is yield farming?
  • What is leveraged yield farming?

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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.

What is yield farming?

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.

How yield farming works

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.

What is leveraged yield farming?

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.

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Last updated 2 years ago

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