Staking and Yield Farming are two popular ways to earn passive income in the cryptocurrency space, but they work differently. Here's a breakdown of each:
1. Staking
Definition: Staking is the process of participating in the validation of transactions on a Proof-of-Stake (PoS) blockchain. By locking up a certain amount of cryptocurrency, you support the network and, in return, earn rewards.
How It Works:
You lock your cryptocurrency in a wallet or on a platform like Binance, which then uses it to validate transactions.
The more coins you stake, the higher the chance you'll be selected to validate transactions and earn rewards.
Typically, the rewards come in the form of additional cryptocurrency of the same type.
Examples: Ethereum (ETH 2.0), Binance Coin (BNB), Cardano (ADA), Solana (SOL).
Rewards: Annual Percentage Yields (APYs) vary depending on the blockchain, often ranging from 3% to 20%, though some platforms may offer even higher yields
2. Yield Farming
Definition: Yield farming involves lending your cryptocurrency to decentralized finance (DeFi) protocols in exchange for rewards. These rewards often come in the form of interest and governance tokens.
How It Works:
You provide liquidity to a liquidity pool by depositing pairs of tokens (e.g., ETH/USDT) on decentralized platforms like Uniswap, PancakeSwap, or Curve Finance.
In return, you earn a share of the transaction fees and potentially receive extra rewards in the platform's native token (e.g., CAKE on PancakeSwap or UNI on Uniswap).
Some yield farmers move their funds between different platforms to chase the highest returns, a process known as "farming."
Examples: Uniswap (UNI), PancakeSwap (CAKE), SushiSwap (SUSHI), Compound (COMP).
Rewards: APYs can range from 5% to over 100%, depending on the platform, the tokens involved, and the demand for liquidity. The returns are often paid in governance tokens, which may fluctuate in value.
