Staking VS Farming
The crypto and blockchain industry provides investors with many options for multiplying their investments. At the same time, some of them, such as, for instance, margin trading, are pretty risky. But, there are still a couple of points for those who like to get a lower passive income but with lower risks. What are we talking about?
Of course, these are staking and farming. In Weld Money we decided to take a closer look at these crypto activities, compare them and, indeed, determine their pros and cons. So… Let’s get started.
Staking is an excellent alternative to mining. In staking, you do not need to spend a considerable amount of electricity to mine cryptocurrency, and there is even no need to buy expensive digital equipment.
To earn money in staking, you just need to hold one or another asset and press a couple of buttons. Profitability in staking can range from 11% to 35% per year, but you need to understand that with profitability growth, the risks of investments also grow.
Staking operates on the Pay Per Period principle, meaning payments occur after a certain period. It is impossible to withdraw investments before this period’s end without a profit loss. Just like with banking deposits. This encourages investors to keep the purchased assets for a long time and not to sell them on emotions in case of a downtrend.
There are two ways to stake cryptocurrencies: by running your own node or by handing over your coins to validators.
The second option is perfect for those who aren’t willing to invest significant amounts and don’t want to get into technical details. And vice versa. Most CEXs provide their users with staking services, so depending on the interface, it’s straightforward.
What about risks?
The risks of staking are similar to the risks of mining: if the price of a cryptocurrency falls, the profitability may not cover the losses. That is why it is necessary to learn a thorough analysis of tokens and crypto projects. After all, the background of the token directly impacts its price.
Farming is one the most popular crypto passive earning, where participants place their digital assets in the liquidity pool and receive a reward for this. The liquidity pool contains coins available for buying and selling.
The liquidity pool is created for a specific crypto pair equally. For instance, SOL/ADA or BNB/BTC. This is done so that when an investor buys SOL for ADA of their liquidation pool, SOL is returned to his wallet instead of ADA.
A pool is a kind of exchange market maker that provides an opportunity to purchase certain assets, and the exchange charges a fee from buyers and sellers for this kind of transaction. Since Binance has its own BNB altcoin, for example, valuation with a currency pair that includes it is significantly cheaper. The rewards are made based on fees, and these rewards are always paid using the native exchange token. This way, UniSwap uses UNI.
Farming profitability (APR) is not constant and depends on the volume of public trading and the pool size. It works as follows: the smaller the pool and the larger the trading volume, the greater your profitability.
Isn’t it risky?
Unfortunately, it is. AS always, when markets are turbulent, users face an increased risk of temporary loss and price slippage. And as well, there isn’t any smart contract 100% secure from hacking.
What to choose?
Both types of earning are pretty accessible and under certain circumstances may be definitely profitable. At the same time, farming sometimes takes a little bit more time to get things clearer for potential investors. And, as mentioned above, risks are almost equal.
And do not forget! After reading our article, you came up with the idea of getting your passive low-risk income, we have what you need.
We have added Staking feature for Weld Money users so they could multiply their WELD tokens number.
Join us and check more details here: https://weld.money/