What are the benefits of yield farming?

• They are managed using smart contracts, which makes it unnecessary to use third parties, as is generally customary in traditional financial institutions.
• Anyone can participate in yield farming; all they need is a compatible cryptocurrency wallet.
• Potentially high returns. In yield farms, it is very common to hit an APY of 100% and above.

Yield farming also has drawbacks that need to be considered before investing your money

• The risk of a possible Impermanent Loss (IL), which can significantly affect the level of returns if the price of the underlying assets starts to change. Linked to this is the high volatility of the cryptocurrency market, which can also be a disadvantage for some.
• A lot of scams, rug pulls and projects with no fundamentals. The fact that anyone can participate in DeFi or create their own project, this is a very common occurrence. Always conduct thorough analysis of a project before entering it!
• Tax proofing issues. If you have to pay tax on cryptocurrencies in your country, it is complicated with yield farming transactions.
• Smart contracts are also a disadvantage as they come with a few dangers due to the possibility of being hacked. The security of these contracts is improving through better code verification and third-party audits, but hacks are still common in DeFi despite this verification.
• Risks associated with potential cryptocurrency regulations.

How do I choose the right platform for yield farming?

1. Research opportunities for investment in yield farms. Explore several suitable projects and save the ones that interest you the most.
2. Conduct thorough analysis of the team, social networks, etc. Check if the developers of a particular project have gone through the KYC process. Visit Discord and ask for community references. Watch the mood in the chatroom to see if it is friendly or, on the contrary, toxic. Last but not least, you need to track how active they are on Twitter and how quickly they respond to user issues on Discord.
3. Check if the platform has been audited. Smart contracts on blockchains are publicly available and their code can be checked by anyone. It is these codes that are audited by many reputable companies to help ensure the security of their code. Despite this inspection, which is called an audit, it is possible for a hacker to find flaws in the code that auditors were previously unable to predict in the first place. Not every project that offers yield farming is truly trustworthy, and past experience has shown that theft can result in major financial damage to users, severely impacting their motivation to continue investing their time and money in digital assets and Web 3.0. Always be prepared to accept a degree of risk and diversify your investments wisely. Your main job is to ensure that you are making consistent returns for the minimum amount of risk possible. Always DYOR!
4. The previous points are the most important when choosing a platform. The security of your digital assets always comes first and foremost.

Conclusion

Yield farming has won the hearts of many crypto enthusiasts in recent years by providing them with an opportunity to earn additional return on their investment in cryptocurrencies. After all, in the classical financial system, it is impossible to find Annual Percentage Yields (APYs) in the hundreds to thousands of percentages.
Yield farming, however, may not pay off for many farmers, especially those with less experience, because of the risks involved.
We shall see what the future holds for this sector and how it copes with the potential risks and drawbacks that accompany it. We will monitor everything together and keep you informed.

Personal Opinion

The idea of earning 100% or more in annual interest can be very tempting indeed, but if you want to participate in yield farming, you should have enough free time to monitor your farms and be able to react promptly in case something goes wrong. Most investors eventually fall victim to impermanent loss when their losses are no longer able to cover even the potential rewards.
Under no circumstances should you invest large sums if you do not fully understand how yield farming works. And even if you believe you do know everything, always diversify your investments in yield farming carefully, as one scam, rug pull, hack or other problem can permanently affect you on your journey in the DeFi world.