A Comprehensive Guide to Yield Farming vs. Staking in Cryptocurrencies

In the rapidly evolving cryptocurrency world, innovations are constantly introduced, enhancing user engagement and earning potential. Among these innovations are yield farming and staking, which offer investors opportunities beyond mere HODLing of their tokens — they can earn passive income and contribute to the cryptocurrency ecosystem's sustainability.

However, the similarity of both methods in providing passive income for cryptocurrency investors often leads to confusion. This article aims to simplify yield farming and staking, highlighting their pros, cons, and ReHold's unique high-income-generating potential.

Yield Farming in Cryptocurrency 

Yield farming is a passive earning strategy specific to decentralized finance (DeFi) platforms and protocols. Analogous to how farmers cultivate crops to produce yields, yield farming operates on a similar principle. In this case, participants, often referred to as liquidity providers, lock up their cryptocurrencies in a 'liquidity pool.' This action enables them to earn rewards, often derived from trading fees or interest on the deposited cryptocurrency.

A liquidity pool consists of cryptocurrencies locked in by liquidity providers, overseen by a smart contract. These pools play a pivotal role in numerous decentralized platforms and protocols, facilitating services such as lending, borrowing, and offering liquidity to decentralized exchanges.

Yields from these pools are typically represented as an annual percentage rate (APR). Rewards can come in various forms, including the DeFi platform's native token or governance tokens. A liquidity provider's earnings are proportionate to their stake in the liquidity pool. Notably, Bancor is among the DeFi platforms offering yield farming services.

Staking in Cryptocurrency

Cryptocurrency staking stands distinct from yield farming. In staking, individuals lock their tokens to improve a blockchain's operations and ensure security. This practice is predominantly tied to blockchains that utilize the Proof-of-Stake (PoS) consensus mechanism.

A consensus mechanism is a system used to verify the authenticity of transactions within a blockchain. Decentralized computer entities, called nodes, maintain the seamless function of the blockchain. These nodes improve the blockchain security by validating transactions, thereby mitigating risks like malicious attacks. For their contributions, nodes receive rewards.

When tokens are staked on a PoS blockchain, individuals get incentives, often in the form of the blockchain's native token. For instance, Ethereum offers Ether (ETH) rewards, while Solana rewards with SOL. Moreover, blockchains like Ethereum have a stipulated minimum staking threshold of 32 ETH for Ethereum.

Several routes are available for staking on a blockchain. One can choose to be a validator node requiring certain technical expertise, employ a third-party service to manage validator nodes, join a staking pool to achieve the minimum staking requirement, or utilize cryptocurrency exchanges offering staking services.

Beyond the enhancement of blockchain security and associated incentives, staking carries various benefits. It grants governance rights to those who stake their cryptocurrency, promotes decentralization by encouraging diverse participation, and offers an eco-friendly alternative to the energy-intensive Proof-of-Work (PoW) consensus mechanism.

Differences Between Yield Farming and Staking

While yield farming and staking are unique solutions powering the blockchain ecosystem. Both have their distinctive differences in several aspects, which are formed from their advantages and limitations. To understand more about each, Let's cover the differences between both and their effects. 

Mechanism: The core difference between yield farming and staking lies in their operational mechanisms. Yield farming involves depositing assets into liquidity pools governed by smart contracts. These deposits earn rewards in the form of trading fees, interest, or governance tokens. On the other hand, staking involves individuals locking their tokens in a dedicated crypto wallet. This action aids in maintaining the operation and security of the Proof-of-Stake (PoS) blockchain. While yield farming is predominantly associated with DeFi platforms and protocols, staking is more aligned with the overarching blockchain infrastructure. Both are vital for the seamless functioning of the cryptocurrency ecosystem.

Complexity in Usage: Staking typically involves a straightforward process where tokens are locked up in a dedicated wallet to generate passive income. The complexity is minimal, and the primary goal is to earn rewards from holding the tokens.

In contrast, yield farming can be more intricate. In certain scenarios, liquidity providers must supply tokens in pairs to engage in yield-farming practices. This means possessing two types of tokens. Additionally, they have to choose a DeFi platform that aligns with their preferences. Yield farmers often switch between different DeFi platforms in pursuit of higher returns, even though this may lead to incurring high gas fees. Mastery of yield farming requires a certain level of technical expertise to harness the full benefits.

Risk Involved: Both yield farming and staking platforms present unique risks. For yield farming, liquidity providers encounter the peril of "impermanent loss," especially when the value of their tokens rises considerably, impacting their potential earnings. Impermanent loss isn't a concern in staking since it doesn't apply.

Another prevalent risk, especially in yield farming, arises from vulnerabilities in smart contracts, causing individuals to lose their locked-in funds. Meanwhile, staking isn't exempt from dangers either. Those who stake tokens are susceptible to "slashing." In such cases, a part of the staked tokens might be forfeited if the validator node behaves inappropriately, like confirming incorrect transactions. 

Both methods struggle with the inherent volatility of token prices. In cases where there's a significant drop in the token's value, simply holding these tokens can appear to be a better option than either yield farming or staking. 

Duration: In yield farming, there is no defined period for a potential return, granting yield farmers flexibility; this implies they can freely withdraw at any moment without restrictions. On the other hand, staking has a defined lock-up duration during which tokens cannot be retrieved. While this method lacks the flexibility found in yield farming, it offers predictable returns. Individuals who find the need to access their funds within the staking period should tread cautiously and might consider abstaining from staking.

Profitability: Yield farming typically offers a chance for higher profitability through elevated APRs, especially evident in newer projects or tokens. This profitability for liquidity providers often gets a boost due to rewards from governance token distribution. However, this high profitability might be ephemeral, mainly because of factors like impermanent loss. In contrast, staking provides a more consistent and lasting means of securing passive income but lacks the volatility in yield farming. Participating in governance or voting activities also brings its own set of advantages.

ReHold's Dual Investment: The Superior Choice in Cryptocurrency Passive Income

While staking and yield farming are popular avenues for generating passive income in the cryptocurrency and DeFi world, they come with certain limitations. These include the risk of impermanent loss, sub-optimal yields, and not always making the best use of deposited funds, particularly in the context of yield farming. In contrast, ReHold's Dual Investment offers a distinctive and resilient high-return solution, boasting up to 220% returns. Users can stake various supported tokens on multiple chains within ReHold’s protocol, including pairs like ETH/USDT, OP/DAI, and MATIC/USDC. Furthermore, this high-yield opportunity matures within a brief span, between 12 to 24 hours, sidestepping many issues linked to yield farming and staking.

Safety remains paramount for us. ReHold utilizes a robust security framework and has received approval from reputed blockchain auditors such as CertiK and PeckShield, reinforcing the trustworthiness of ReHold's protocol.

How to use Dual Investment to Generate High Yield

ReHold offers a distinct method to explore the DeFi earning environment. Users can earn high-yield passive income on tokens spanning multiple chains such as Ethereum, Binance Smart Chain, Polygon, Arbitrum, Optimism, and Avalanche. This is made accessible through an intuitively crafted platform that also considerably cuts down on gas fees. Further enhancing its offerings, the latest version of the protocol, ReHold V2, introduces additional features. "Limit Orders" is one such feature that empowers users to trade tokens at prices above or below the market rate. Another noteworthy addition is "Auto Replay." This feature ensures the optimization of yields by auto-reinvesting tokens once their staking period concludes, and it does so without incurring any gas costs.

To begin your journey of earning impressive passive APRs with ReHold, a detailed guide is provided to assist you every step of the way:

• Launch the ReHold App and Connect your wallet

Open the ReHold App and connect your Web3 wallet. Choose a Web3 wallet compatible with one or more of these networks: BNB Chain, Polygon, Avalanche, Optimism, and Arbitrum. 

• Choose a Dual Asset

Select the Dual you need, such as ETH/USDT, OP/DAI, and MATIC/USDC. You can start a dual investment with each token of the pair.

• Choose a Staking Period

Select how many hours you want to lock your tokens. The longer the staking period, the higher the yield you will receive. 

• Choose the Start Token

Select the start token and the amount you want to invest. You can use the ETH token with USDT or other tokens of the dual asset, in this case, USDC and DAI. 

• Approve the token

To start a Dual Investment, you need to allow smart contracts to use your tokens. It's required only once for a selected token.

• Start Your Dual

Click “Start Now” to create your dual and receive your reward after the staking period.

That's it! After the staking period ends, you can either withdraw your assets or start a new Dual Investment.

Also, if you are interested in long-term investing, you can activate the auto-replay feature, and your dual will automatically restart when the staking period ends. This will save you gas, simplify the passive income process, and increase your earnings.

Shaping the Future: ReHold's Innovative Convergence of Yield Farming and Staking 

Yield farming and staking, while individually providing avenues for earning, often leaves investors in a dilemma. Our innovative solution, Dual Investment, offering up to a staggering 220% APR, is a testament to our commitment to maximizing investor returns. This novel approach of combining the best aspects of both yield farming and staking has revolutionized the way DeFi enthusiasts interact with their investments, ensuring optimized yields while mitigating potential risks.

As the DeFi space continues to grow and adjust, ReHold will continuously strive for innovation and user-centric features to help reshape the future of DeFi investments.