Is this just another craze, though, like the ICO, craze that we had in 2017 and 2018, or is this newfound obsession with defy and hewed farming actually legitimate, and is it because of the hundred percent potential gains that people have been making we're gon na be looking At that, in today's, video and we're gon na be asking whether this is the future of crypto or if this too is going to end in flames in this video we're gon na. Look at everything you need to know about yield farming from defy products to how to actually go about taking parts in it. We'Re also going to look at the substantial risks you put yourself at if you do yield farming and we're going to look at whether this is in fact something that can be done long term or if this is really a short term gain. If you're new to the channel, please do make sure that you like and subscribe to the channel use that notification bell down below as well. It really helps to get the channel discovered and seen by other people out there. So please do that to help out if you're well ahead of me – and you already know all about defy products and just want to know about how to do yield farming, please make sure you use the actual chapter links in the time down below and it'll skip. You to the parts that are relevant to what you want to learn so with that said, let's go and start learning about youd farming and why? This is a very exciting, but very ultimately risky way to invest now Defy is peer to peer decentralized finance, it's.
Very much a fearian based project at the moment now, you might say, but isn't Bitcoin decentralized, financed well, no, not in the terms of how defy really works. Bitcoin is, of course, decentralized money, and it is a store value, but in order for a defy product to actually be defy, it needs to be able to run on smart contracts, and you can't actually do that much in the way of complicated smart contracts with Bitcoin. So you actually will need to use something like aetherium because of the solidity language that it runs on now. What defy really is is that it's taking legacy financial products and putting them on the blockchain now the thing about defy is that it's actually very complicated, set of different decentralized applications, stable coins and lending platforms to be good at yield. Farming you're gon na have to have a good understanding of how all of those things work together and if you're not familiar, then stop and do not go ahead with it. You need to understand what all of the tools in the toolkit do before you start throwing large sums of money at it. Now you'll often hear defy being described as money, Legos and that's, because you can take a lot of the products out there and you can actually combine them in very unique ways in order to create your own financial service and product. This great article by total on medium, shows that there's actually over 200, defy tools and if you only picked, three you'd actually have a massive 1 million three hundred and thirteen thousand four hundred combinations to choose from and actually next Thursday.
I am going to do a video where I go into a lot more depth about these money, Legos and I'm, going to show you how you can combine them in different ways to actually create your own financial products and services using TFI a dueling device. A very exciting area, but for the purpose of this video we're focusing on yield farming, so we're not going to get too in depth about how to use the money Legos like that. But we will cover that in a future video. Okay, so because we're talking about yield farming, it's best that we use borrowing and lending as an example of a defy product, so that you can understand how the whole system works. Now, unlike traditional bank loans, there are no credit checks, there's, no credit scores or anything like that. You don't need to fill in an application form to explain your business idea of what it is you're spending that loan on it works very, very differently now. Another way that they're different is that they're collateralized loans. That means that you are actually having to put down collateral on the loan, often worth more than the loan you're actually taking. Now you might think this over. Why would you want to take one of these loans? If you're having to put down an actual amount of money, that's larger than the loan, you want well as an example, if you had a Bitcoin, but you are in short term need of some actual real fiat currency, so he needed some dollars of pounds.
Well, what you could do is, of course you could sell your Bitcoin. You could then deal with the tax man and the fact that you've had to sell your Bitcoin and then, whatever you have left, you would use to pay off those short term bills or whatever it is. You need to do with your money, maybe it's you're late on your mortgage payments or your rent, or something like that. So you'd sell your Bitcoin once you're back into the flow and you've got your cash flow again and you are ready to buy another Bitcoin to replace the one you just had to get rid of. Well, what happens if, when you sold your Bitcoin you've sold it for 10000, but now the Bitcoin is actually worth 15000 well, you've lost out on 5000 worth of gains, because you were in desperate need of cash flow. Well, of course, you're stuffed you'll have to either just buy 10000 worth of Bitcoin or pay up the bigger amount to get the same amount of Bitcoin back with a t5 loan. What you can do is you can actually go ahead and put your Bitcoin down as collateral on a loan in fiat currency and when you're ready to repay in that loan, you pay it back and you'll get your Bitcoin back in return. Now you can also look at lending and borrowing different crypto currencies in order to become what you call a market maker, providing liquidity to other platforms in the dphi space.
This lending and borrowing of cryptocurrency, stable coins and other assets is where people can start to make a return and interest on their actual money. That return is the yield that everybody is talking about. Farming now, when you put your money into a traditional bank, what's happening is, is the bank is actually lending your money out either to other businesses or to people through secured loans? The problem there of, as though with most savings accounts in the UK, you'll, probably be lucky. If you get 0.01 percent interest on your actual savings, even some of the best high interest accounts out there, where you have to have large amounts of capital going in. Only actually return 2 to 3 percent we've defy lending and viewed farming as a technique and strategy. There are people making a hundred percent returns on their actual savings and their crypto. Now this is because a borrower's are willing to actually pay more to borrow different crypto assets and be lenders, and borrowers are actually making bonuses from a lot of the platforms that they're using and they're being rewarded in proprietary platform. Tokens for the defy protocol that they're using the best known example, is compound finance. Now compound finance are the guys who started this huge farming craze right now. You can see here that there's, just under 1 billion dollars worth of assets actually locked up with compound finance and over 350 million dollars being lent to borrowers now.
The reason that so many people are happy to have their assets locked up with compound finance is because they have something called liquidity mining now. Liquidity mining is where the longer you hold a token in lockup, the more of their actual proprietary token comp. You are going to be rewarded with now. This is their governance token. It allows you to vote on things for the way that compound finance works, but also it's in price discovery mode at the moment, and so there is potential that whatever comp you gain through lending on this platform, or borrowing in fact, could be worth more than the Loan that you've taken it depends where the price finally settles, but, as you can see, it's currently trading at over 200, so it's doing pretty well now there are just under 3000 comp tokens being actually distributed every single day and the reward is actually split. 50. 50. Between borrowers and lenders, and as you can see on the website, there there's actually more people lending than there are borrowing, so you could potentially get a much bigger share of comp if you're one of the actual borrowers. Now, how do you actually do yield farming now? You'Re, probably thinking well, I just go over to compound and I lend whatever asset it is. I want to lend straight away and that's how I earned some comp and a bit of return on my bit of interest on my crypto. Well, that wouldn't be yield farming that would just be using the platform straight up.
Nude farming is a very complicated way of doing things, but has massive returns, although I will point out that the risks are much higher and we'll talk about those towards the end of the video to really actually make this system and this strategy work for you. You actually want to be lending different cryptocurrencies to different platforms and, while also borrowing other cryptocurrencies from different platforms and protocols and then using those assets on other protocols to lend to other people and, like I said it sounds pretty complicated, but we're gon na walk you Through how it's done so, the first thing that you're going to want to do is pop over to defy rate, to check out what the interest rates are on borrowing and lending for different tokens and coins. So once you're on the site, you need to check the lending tap first to see which coins are earning the most returns on compound, as you can see here, bat is getting 25 and WBT, see that's wrapped Bitcoin, which is Bitcoin put on the etherium blockchain that's. Getting 5.8 9. You then need to check out the borrowing tab, and you can see that you can borrow bat for 14.2, 2 or new. Now. What you're going to do is you're going to go to new and you're going to need to put down collateral. To borrow bat, so you can actually put down USD C as your collateral, which itself is earning 13.
5 1 interest per year on the protocol there. So you can actually take your bat then to compound finance and lend it out there to gain your interest there too. Now figuring out how money you can earn and how much it's going to cost you to actually do some real Dharma is why it's so complicated and it's? Why it's not for newbies, so you do need to kind of have a bit of a brain for it to be able to figure out what your interest rates are and all the rest. Luckily, there is a really good website that you can check out. That will give you a calculation and that website is called predictions exchange. And if you go to the calculator here on the website, you can see the device the lend 100 worth of bat. At this rate, I would actually earn 25 and 11 cents in interest and 0.17 comp tokens. Then at today's value would be an additional 42.86 in gains which actually would make my total return on a hundred dollars, just a small investment of 100. It would make my total return. Sixty seven point, six, seven percent, so I would make sixty seven dollars on just a hundred dollars invested now. You would also have to take into account the fact that I've had to borrow an asset to be able to exchange it and to lend it on another platform. So, to figure that out, I have to consider that I'm paying interest on my bat that I borrowed, which was fourteen point two two percent, but don't forget I'm, also gaining thirteen point five.
One percent for my u.s. DC loan so I'm effectively just paying 0.71. For my loan of bat tokens, I am then actually nearly making 26 percent for the bat loan on compound plus the comp tokens I'm earning from the liquidity mining, so it wouldn't be quite 67 dollars profit by the time I've taken into consideration. The loan that I've had to take out myself, but, as you can see, if you play this properly, you could be paying very little interest on that loan, but making a massive return on lending it on a different platform and in a way this is kind of Just like arbitrage now, depending on where you're borrowing and where you're lending you can actually make protocol based tokens on most of the loans and the actual borrowing that you do, which is why you have seen people being able to talk about these hundred percent gains that They'Ve made from the old farming. What we do need to consider, though, is the massive risks that come with this technique. Now, you'd farming strategy is definitely not for newbies and it's, not one that you should be sticking your life savings in. You should definitely if you're gon na be trying an out be trying it out with a small amount of capital, because I am gon na explain what the risks are now and why. I don't think that this is gon na last forever. One thing that we have to keep in mind is that the whole of the system is built on smart contracts.
Smart contracts are written in solidity, that's the programming language specific to etherion. Now, because it's turing complete it does mean that there are potentially lots of room for errors. We'Ve seen that with the doubt where we had a hack. That was because of poor, shoddy solidity programming amend that millions and millions of dollars worth of crypto was stolen. The same could happen with any of these defy products and that's. Why it's really important that, especially if you're going to be doing this, you stick with established efi products, ones that have been running for a while and have been actually audited properly. The other big risk is a liquidation. If you are borrowing and you put down a high amount of a crypto asset for collateral and the value of that crypto asset drops significantly, then your loan could be completely liquidated. Now it doesn't mean that you have to pay anything else back, but you lose the actual Bitcoin or whatever cryptocurrency it was you put down as collateral, so you could end up losing out if you're liquidated. I think it's also really important to point out as well that this technique is getting a lot of exposure this week, everybody on YouTube is talking about it and even Forbes have written an article about yield farming and how to do it. If we start to see retail investors getting overexcited about this technique, what we might see is: yes, definitely, some massive short term gains for anybody who's into it right away now, but will it end up being like the ICL craze? The whole system does appear to be built on supply and demand and, as the supply increases you're going to see, those yields actually decrease quite a bit.
So if too many people get in on this, then you're going to start to see those returns being diminished. I think that long term they're still going to be potential to make money doing this, but what you will see is you'll see that the actual returns will start to come down now. I definitely think that D Phi is the future of crypto products, but then I did say that about ayios and stos and neither of those seem to have worked out just yet. I think that, as we move forward, the yields for this are going to start to drop, but right now I think that this is a high risk. High reward strategy for people who are experienced in the space and for those who aren't putting their life savings into it definitely do not go putting more than you can afford to lose into this because, like I said guys, I have a feeling that, if we are Too slow in this new technique, this new way of trading, we could end up losing out big time if we do see those inexperienced retail investors rushing to get in on this yield farming. I can definitely expect a furious price to go up as well as chain link and the reason for that we'll talk about in another video, but I do think that those two coins are going to actually become very, very popular. If we see FOMO kicking in with this, if you want to be lending out your crypto, but you want to do it in a more risk managed way, there are actually alternative platforms for you to be able to lend your crypto are like block Phi and Celsius.
Now, they're 10 APR might not be as exciting as the sound of a hundred percent over on compound, but the risk is going to be lower and it's not going to require you to be jumping hoops and looking at charts all day and making sure you transfer Different coins between different platforms in a strategy that really requires your full attention. Now, what do you guys think is defy just a fad, or do you think that this is actually the future of crypto and is yield farming, something that you've tried out yourselves that's your video chat question for today. Let me know what your thoughts are in the comments down below. If you found this video useful, please make sure that you like and subscribe to the channel and as always this is not financial advice.