How to Farm yields on the BNB Chain
6 min read
What is yield farming?
The process of earning cryptocurrency profits/rewards by either staking, lending or pooling digital assets in a virtual ecosystem is known as yield farming. It's one of the major drivers of the Decentralised finance ecosystem, which is growing at a rapid pace.
The core concept is similar to that of "passive investing", it's just that the investing instruments and methods are new and more advanced. For eg: the use of smart contracts in order to hold funds.
You can definitely say that these are the financial products of the new generation money markets.
BSC yield farming
For people looking towards yield farming BSC, the options are numerous yield farming platforms for the BNB chain. Amongst crypto holders, some of the popular platforms when it comes to decentralized applications are Ellipsis Finance, Venus Protocol, Beefy Finance and Apeswap. Most of these are also available as mobile applications too.
For explanation purposes, let's dive into the yield farming protocol, Ellipsis Finance since it has one of the largest liquidities in yield farming pools in the ecosystem and offers attractive returns as well.
Do note that these yield farming platforms are also referred as decentralized exchanges. Another term to describe them is lending platforms.
One of the nice features about Ellipsis Finance is that you can see the important statistics like annual percentage rates (similar to annual interest returns) about the most active yield farms right on their homepage. Another cool thing is that platforms like these do not require an identity verification of any kind.
We should think about which farm we wish to enter before we begin to farm. We'll be using the BNBx-BNB yield farm since BNB is the native token of Binance and BNB Chain and BNBx is the liquid staking derivative by Stader. Due to the high level of popularity of both coins, the long-term viability will be extremely high.
The annual percentage return (APR) that BNBx-BNB will provide us with is shown to be 14.32% in this instance. As a result, if you were to lock away $1,000 in BNBx-BNB liquidity for a year, you could anticipate earning about $140 in returns from yield farming. For higher a DeFi yield, you can go for smaller and less popular tokens. But those usually carry more risk as well. Depending on your risk limit, the Binance Chain has numerous options available at any given time.
Connecting your wallet
You must now connect your cryptocurrency wallet to Ellipsis Finance if you haven't previously. TrustWallet, WalletConnect, and MathWallet are just a few of the various wallet alternatives; however, we'll utilize Metamask. That's because it has the highest number of Binance chain users when it comes to wallets letting you participate in decentralized finance.
Configuring BNB smart chain on Metamask is required before using Ellipsis Finance with your Metamask wallet. It's really easy to do. All you have to do is go to "Add Network" and select BNB smart chain from the drop down list.
If you don't have Metamask installed, you can get that from here.
That completed? Good. You can proceed by clicking the "Connect Wallet"button which is present in the top right corner of the screen.
Divide your capital between the two farmed tokens before locking up any liquidity for yield farming. In order to enter the BNBx-BNB farm, $1,000 in BNB would need to be converted into $500 BNBx and $500 BNB. Use the token exchange function on Ellipsis Finance to change $500 of your BNB into BNBx. Similarly you would have to exchange $500 of your Binance coin into BUSD in order to participate in a BUSD-BNB farm.
Choose "swap" after selecting the BNBx-BNB pool , then switch your assets between the two tokens you want to farm. Since this is the lightning-fast & low transaction fees BNB Chain, the time it takes for the transaction to complete will probably be comparable to the time it takes to read this sentence.
You now need to increase the platform's liquidity. You'll see the "Add Liquidity" option right next to the "Swap" tab. Select that and choose the option of ''Add Liquidity" and enter the desired quantity of tokens now and proceed. Click the "Confirm Supply" button in the pop-up window that follows, and then confirm the transaction in your Metamask wallet.
Once you've provided liquidity, you'll get reward tokens. These are Liquidity Provider tokens which serve as proof of deposit, resembling in some ways the ticket you get when you hand over your car to a valet.
Once you have your LP tokens, select "Stake LP" in the right-hand side. To stake the desired number of BNBx-BNB LP tokens, enter the desired amount in the box which has the option to stake. Approve Ellipsis to stake your LP tokens and you are good to go. You must confirm the transaction in Metamask once more.
You have just started yield farming on Ellipsis Finance and BNB Chain, presto. Even though different procedures could have slightly different looks, the overall procedure is the same. You will easily learn how to navigate other platforms once you have completed the process on one.
Before deciding if yield farming on BNB chain is right for you, there is one more item we should cover. There are some risks associated with yield farms, especially impermanent loss.
What is Impermanent Loss?
Tokens for the liquidity pool give the holder a share of the liquidity pool. For instance, if someone becomes a liquidity provider at a 10% share, they will receive 10% of the pool when they withdraw their money. The precise make-up of what is in the pool may alter over time. This could imply that the liquidity pool has grown or shrunk since they first entered.
It can also imply that the value of the paired tokens has changed. For instance, one of the token price might have climbed while the value of the other token would have fallen. In reality, the tokens' values diverge from one another.
When the price differential between the two locked-up tokens fluctuates too much, impermanent loss happens. Trading the appreciating asset for the depreciating or stable asset allows traders to maintain the pool's balance. The 10% of the pool that the liquidity provider obtains in exchange for returning their LP token may not be worth as much as it would have been if they had simply hodled their crypto assets.
The term "impermanent loss" does not necessarily imply monetary loss. Impermanent loss simply refers to the difference between the value of withdrawn tokens and the value of deposited tokens; it does not factor in the value of yield farming profits.
Is there any BSC yield farming tracker?
There's a simple way to keep a bsc yield farming list for the BNB chain. Just visit the farm page of any digital asset exchange of your choice and you'll be able to see all the yield farming opportunities along with stats like annual percentage yield or yield percentages. Do compare and research all the options available before making a decision.
You can also use sites like coinmarketcap in order to find details like trading volume for the lending protocol you are interested in.
Another alternative is BscScan. Not only you'll be able to find specific token details like market capitalization, but you can also find out about Binance smart chain metrics like transaction fees, gas costs etc.
As we stated at the beginning of the article, the process of yield farming is a broad topic that includes a variety of tactics. If you followed this article, fundamentals of BSC yield farming should be a familiar concept for you and exploring DeFi opportunities on the Binance chain should be a good experience for you.