Staking and Farming
What is staking?
Staking is simply explained as taking your tokens and adding them to a staking pool and earning interest over time as a reward for doing so. It’s kind of like a less resource intensive form of mining. When you stake tokens, you are actively helping the blockchain validate transactions. This is most similar to a basic interest bearing account, but usually at a much higher interest. Many projects will allow you to earn more of the token you are staking, or sometimes, another token entirely. Like everything else in crypto, percentage rates are prone to often fluctuate greatly. Staking is generally considered safer than farming.
What is yield farming?
Riskier than simple staking, yield farming is a process that allows investors to contribute into liquidity pools of projects. In this model, the investor is acting like a bank, loaning out their assets and collecting fairly high levels of interest as a reward for doing so. As a liquidity provider, an investor deposits their asset into a liquidity pool (which is a contract filled with funds). These platforms carry a fee to use, and those fees are often distributed amongst liquidity providers based on their share of the liquidity pool.
Yield farming typically requires the investor to purchase liquidity pair tokens, which are usually 2 assets combined in a 1:1 ratio. Many of these pairs are tied to BNB. If an investor chooses to provide $100 of asset A, they would need to also contribute $100 of BNB to create LP tokens. Those tokens then can be staked to earn more single asset or LP tokens.