Now more than ever, crypto investors are shifting to passive income strategies to help shape their financial future for the better. And there is nothing wrong with taking this route since it offers high-interest rates compared to active trading. But with multiple ways to earn passive income in the crypto market, how do you choose the best for your needs?
Among the popular solutions in DeFi trading worth trying your hand in are Staking and Yield Farming. However, these two options have discrepancies you need to consider before settling on one. Here are a few ways these two methods differ and how to leverage each one hassle-free.
Yield Farming and Staking Definition
Before we delve into the differences, it is in your best interest to determine what you’re dealing with in the first place. In a nutshell, Yield farming is merely a way of generating cryptocurrency from your crypto holdings. And this doesn’t come as a surprise since an investor temporarily lends crypto assets in DeFi platforms. The catch lies in leveraging the best DeFi lending platform to maximize your earnings.
As for Staking, it is a mechanism that emanates from the Proof of Stake (PoS) consensus model. It entails supporting a blockchain and taking part in the transaction. This is possible since investors commit their crypto assets to that network. With Staking, you get to earn interest on your investments while awaiting the release of block rewards.
Now that you have an insight into how these two methodologies work, it is time to examine their differences. Even though Yield farming remains the most profitable passive investment method to leverage, it is highly risky. Not only do you practice it on newly created DeFi projects that subject you to rug pulls, but it also takes time to master how to read smart contracts.
If you are new to DeFi, it pays off to start with Staking since rug pulls are less likely. Furthermore, you only need a minimal initial investment to get going with Staking. However, volatility runs across the board in Yield farming and Staking.
We can never forget about the rewards when looking into Yield farming vs Staking differences. After all, there is always a reward where this is a risk. With Yield farming, investors enjoy rewards in terms of APY on the assets locked in by participants. The situation is different with Staking as it allows transaction validation in the network and rewards in native tokens.
The Bottom Line
Before you decide to try Yield, farming or staking, be sure to factor in the pros and cons of these two. You want to be sure that you’re counting on what’s perfect for your portfolio, and this can only happen if you do your homework. Of course, they are both still new passive income strategies compared to options applicable in other financial markets. Hopefully, the above differences can help you decide the best between the two.