Yield farming is a popular concept in decentralized finance (DeFi) that allows users to get rewards by lending or staking cryptocurrency on a blockchain-based platform. The idea is straightforward: you deposit your digital assets into a decentralized application (DApp) or liquidity pool, and in return, the platform rewards you with additional tokens. It’s similar to the way interest can be earned on the money held in a savings account.
Yield farming helps decentralized platforms by providing liquidity, which is essential for these platforms to function smoothly. The less liquid a digital asset is, the more difficult it becomes to buy or sell that asset, resulting in the potential for extreme price volatility. In exchange for contributing to an asset’s liquidity, users receive rewards, which vary depending on the platform and the type of assets staked.
How Does Yield Farming Work?
Let’s compare yield farming to a community garden. Imagine you’re growing plants in a shared garden where everyone contributes seeds (digital assets). As the plants grow, the garden yields fruits (rewards), which are shared among all contributors based on how much they’ve contributed.
Yield farming works in a similar way: Users provide liquidity to decentralized platforms, and the platform distributes rewards proportionate to each user’s contribution.
Here’s how it typically works step by step for the user:
Provide Liquidity: You deposit your cryptocurrency into a liquidity pool on a DeFi platform. These liquidity pools are essential for decentralized exchanges (DEXs) and other financial services to operate without a traditional intermediary.
Collect Rewards: In return for providing liquidity, you earn rewards, often in the form of the platform’s native token or other assets. The more liquidity you provide, the more rewards you can earn. These rewards are typically accumulated over time from the transactional fees charged to those who trade on the platform.
Stake or Claim: Some platforms allow users to stake their reward tokens in additional liquidity pools to compound their rewards, while others simply let you claim the rewards directly.
What is a Liquidity Pool?
A liquidity pool is a collection of funds locked into a smart contract. These funds are used to facilitate trading on decentralized exchanges or to support lending and borrowing activities on DeFi platforms. By contributing to a liquidity pool, you help ensure there is enough liquidity for users to trade or borrow assets, making the entire platform more efficient.
A basic liquidity pool involves an exchange pairing between 2 different tokens. When initially providing liquidity, the provider would stake equal value parts of each token, ensuring that they have added liquidity to that pairing equal to the value they have contributed.
Why is Yield Farming Important in DeFi?
Yield farming plays a crucial role in the decentralized finance ecosystem. It ensures that there is enough liquidity for decentralized exchanges and lending platforms to function smoothly without needing centralized control. Large privately owned exchanges provide the liquidity themselves, keeping enough value to back the trade activity for all their exchange pairings.
The decentralized approach empowers users by enabling them to get rewarded while contribute to the ecosystem, without relying on traditional financial intermediaries, such as banks.
Here are some key reasons why yield farming is important:
Liquidity Provision: Without yield farmers, DeFi platforms would struggle to have enough liquidity for trades, loans and other financial operations. Yield farmers ensure there’s always enough liquidity in the system.
Reward Incentives: Yield farming provides an attractive way for users to get rewards by simply holding and staking their digital assets, often far more than traditional savings accounts.
Decentralized Control and Anonymity: By participating in yield farming, users help maintain a decentralized system, keeping control in the hands of the community rather than centralized entities.
Risks of Yield Farming
While yield farming can offer high rewards, it also comes with certain risks. Here are some of the main concerns to be aware of:
Impermanent Loss: When you provide liquidity to a pool, you might experience impermanent loss. This happens when the price of the assets you’ve deposited changes compared to when you added them. If the price moves significantly, your potential rewards could be reduced. There is no guarantee that the value of the liquidity you have provided will hold steady.
Smart Contract Vulnerabilities: Yield farming relies on smart contracts, which are pieces of code that automatically execute transactions. If there’s a bug or vulnerability in the smart contract, it could result in loss of funds.
Platform Risk: Not all DeFi platforms are created equal. Some may have weaker security measures or be more prone to hacks and exploits. It’s important to research the platform you’re using before depositing assets.
Popular Platforms for Yield Farming
There are several popular DeFi platforms where users can participate in yield farming. Here are a few:
Uniswap: One of the largest decentralized exchanges where users can provide liquidity to earn rewards.
Aave: A DeFi lending platform where users can deposit assets into liquidity pools and earn rewards through lending.
Compound: Another popular lending platform where users can earn rewards by lending out their assets.
Each of these platforms operates slightly differently, but they all provide opportunities for users to stake or lend their assets and earn rewards.
Yield Farming in Action: An Example
Let’s break down a simple example of yield farming in action:
You decide to stake some of your digital assets (for instance, Ethereum) on a platform like Uniswap.
You deposit these assets into a liquidity pool for a specific trading pair, such as ETH/USDC (Ethereum and USD Coin).
As people trade between ETH and USDC on the platform, they pay small fees, which are distributed proportionally to all the liquidity providers in the pool.
In addition to these fees, you may also earn rewards in the form of the platform’s native tokens.
Over time, the rewards accumulate, and you can choose to reinvest them or withdraw them.
Yield farming is often a valid option for long term holders of well established cryptocurrencies who would like to generate passive rewards from their holdings. However, it is always important to do extensive research before making the decision to provide liquidity or get into yield farming. Not all dApps and platforms are created equally.
This article is meant for educational purposes only and should not be considered financial advice.
Liquidity is a concept that pops up often in the world of finance, and it’s just as important in the Web3 space, especially with the rise of decentralized finance (DeFi). In simple terms, liquidity refers to how easily you can buy or sell an asset like a cryptocurrency, without drastically changing its price.
To put it in everyday language, imagine you’re at a market selling apples. If there are plenty of buyers ready to purchase your apples at the current price, then your apples are more “liquid.” You can sell them quickly, and you don’t have to drop the price to attract a buyer. However, if there are only a few buyers, you might have to lower the price or wait a while to sell your apples. In that case, your apples are less liquid.
Sellers and buyers are both necessary for any market to work effectively; the concentration of each of them influences the market in many different ways.
In Web3, liquidity applies to digital assets like cryptocurrencies and tokens. High liquidity means people can trade their tokens quickly, while low liquidity means it’s harder to find someone to trade with, and you may need to wait longer or accept a worse deal.
Why is Liquidity Important in Web3?
Liquidity plays a big role in how smoothly decentralized markets and applications function. Here’s why liquidity is crucial in the Web3 world:
Efficient Trading: High liquidity means you can easily trade your tokens without slippage (the difference between the expected price of a trade and the actual price). If liquidity is low, prices can swing drastically after each trade, creating an inconsistent and unpredictable market.
Fair Prices: In liquid markets, prices tend to be more stable and reflective of real value. With low liquidity, even small trades can cause big price movements, making it harder to predict what you’ll pay or receive for a token. This is why with tens of thousands of altcoins in existence, the vast majority of them have proven so volatile from one day to the next.
User Experience: Web3 applications like decentralized exchanges (DEXs) need liquidity to offer fast and reliable services. If liquidity is low, users may experience delays or unfavorable prices when trading tokens, which can discourage participation in that exchange. For a decentralized exchange like Uniswap to compete with a centralized (privately owned) exchange like Coinbase, liquidity is used to create equally convenient trading activities for users.
How Does Liquidity Work in Web3?
In Web3, liquidity typically comes from two main sources:
Liquidity Providers (LPs): In decentralized finance (DeFi), liquidity often comes from regular users who deposit their crypto into a liquidity pool. These users are called liquidity providers. By contributing their tokens to the pool, they help create liquidity, which allows others to trade. In return, liquidity providers earn rewards like a share of the trading fees. Typically, a liquidity provider contributes to a liquidity pool by providing an equal-value amount of both tokens involved in that exchange pairing.
Liquidity Pools: A liquidity pool is a smart contract that holds funds to facilitate trading between different cryptocurrencies on a decentralized exchange. For example, if someone wants to trade Ether (ETH) for a stablecoin like USDC, the liquidity pool allows them to do so without needing a direct buyer or seller. The more funds in the pool, the easier and quicker trades can be made.
Think of liquidity pools like communal pots of money that people can use to trade tokens with each other. The bigger the pot (more liquidity), the easier it is for everyone to trade, and with larger amounts at a time.
Examples of Liquidity in Web3
Uniswap and Liquidity Pools: One of the most popular platforms in DeFi, Uniswap, allows users to swap between different tokens by tapping into liquidity pools. Users provide liquidity by depositing pairs of tokens (like ETH and USDC) into the pool. In return, they receive a percentage of the fees generated when other users make trades.
Stablecoins as Liquid Assets: Stablecoins like USDC or DAI are often considered highly liquid because they are widely used and can be easily exchanged for other tokens. Their prices are stable, which makes them ideal for providing liquidity in many DeFi applications.
NFT Liquidity: Liquidity doesn’t just apply to cryptocurrencies—it also applies to NFTs (non-fungible tokens). Some platforms are experimenting with ways to create more liquidity for NFTs by letting users fractionalize them, meaning they split the NFT into smaller pieces that can be traded more easily.
Liquidity Mining and Yield Farming
In the Web3 world, liquidity mining or yield farming is a way that people are incentivized to provide liquidity to a decentralized platform. Essentially, liquidity providers earn rewards, usually in the form of extra tokens, for depositing their assets into a liquidity pool.
For example, if you deposit your crypto into a liquidity pool on Uniswap, you may receive Uniswap’s governance token ($UNI) as a reward. This is a reward incentive, a way to encourage more liquidity, keeping decentralized exchanges running smoothly.
Why Liquidity Matters for Web3 Projects
For Web3 projects to thrive, they need liquidity. Without it, users would struggle to trade tokens or interact with decentralized applications (dApps). Here are a few key reasons why liquidity is critical:
Smooth Functioning of DEXs (Decentralized Exchanges): DEXs rely heavily on liquidity pools. Without enough liquidity, users can’t easily swap tokens, which disrupts the whole system.
Trust and Adoption: High liquidity signals trust in a project. If a project has deep liquidity, more users are likely to join, trade, and use the platform. On the other hand, low liquidity can deter users because they may worry about the stability and usability of the platform.
Price Stability: More liquidity means token prices are more stable and less likely to be affected by large trades. This creates a healthier market and attracts both casual and serious investors.
Common Liquidity Terms in Web3
Liquidity Provider (LP): A user who contributes tokens to a liquidity pool to facilitate trading on a decentralized exchange.
Liquidity Pool: A smart contract that holds tokens to enable decentralized trading between two or more cryptocurrencies.
Slippage: The difference between the expected price of a trade and the actual price. High slippage happens in low-liquidity environments.
Liquidity Mining/Yield Farming: The process of earning rewards for providing liquidity to a platform or decentralized exchange.
Impermanent Loss: A potential risk for liquidity providers. This occurs when the price of the deposited tokens changes compared to when they were deposited, leading to lower value when they’re withdrawn.
The Lifeblood of Web3
Liquidity is crucial to making decentralized platforms work efficiently. Whether it’s enabling quick and cheap token swaps, stabilizing prices or collecting rewards through liquidity mining, liquidity plays a huge role in Web3 ecosystems.
For those new to the Web3 world, understanding liquidity can help you make better decisions when participating in DeFi platforms, trading tokens or even providing liquidity yourself for passive rewards.
Layer 2 (L2) blockchains are solutions built on top of an existing Layer 1 (L1) blockchain (like Ethereum) to improve its performance. In simpler terms, if the blockchain was a road, Layer 1 would be the main highway, and Layer 2 would be like a smaller, parallel road built to ease traffic on the highway. The goal of Layer 2 chains is to make transactions faster, cheaper and more scalable.
Why Do We Need Layer 2?
Blockchains, especially popular ones like Ethereum or Bitcoin, often face issues like slow transactions and high fees when too many users are trying to make transactions at once. This is because every transaction has to be processed by all the computers (or “nodes”) in the network, potentially slowing things down and making performance inconsistent.
Layer 2 chains help solve this by processing transactions separately from the main blockchain, reducing the workload on Layer 1. Once the transactions are bundled or “rolled up,” they are sent back to the main blockchain, significantly speeding up the process.
How Do Layer 2 Solutions Work?
Layer 2 solutions relieve some of the main blockchain’s burden, allowing users to conduct transactions without congesting the main network. Here’s a breakdown of how this works:
Transaction Bundling: Multiple transactions are grouped together.
Processing Off-Chain: These transactions are processed “off-chain,” meaning they don’t happen directly on Layer 1.
Settlement on Layer 1: After processing, the result of these transactions is sent back to the main blockchain, reducing the load.
An easy analogy would be an amusement park with long lines for rides (the Layer 1 blockchain). Layer 2 would be a fast pass line that processes smaller groups more quickly, then checks them in with the main system.
Polygon (formerly Matic): One of the most well-known Layer 2 solutions for Ethereum, Polygon uses a technology called “sidechains” to help Ethereum scale. Polygon runs alongside Ethereum, processes transactions off-chain and then updates the Ethereum blockchain with the results.
Arbitrum: This uses a method called “rollups” to bundle transactions together, verify them off-chain and then submit the summary to Ethereum. It helps reduce costs and speed up transactions.
Optimism: Similar to Arbitrum, Optimism uses rollups to bundle transactions and reduce the cost of using Ethereum while keeping the security benefits of Layer 1.
Why is Layer 2 Important for Web3?
In the Web3 world, where decentralized applications (dApps), smart contracts, and DeFi (decentralized finance) platforms are booming, scalability and low transaction costs are critical. If users have to wait a long time or pay high fees every time they want to interact with a blockchain, mass adoption becomes much more challenging.
Layer 2 solutions are important because they offer:
Scalability: More transactions can be processed, allowing blockchains to handle millions of users at once.
Reduced Costs: Since fewer transactions are processed directly on Layer 1, the fees (often called “gas fees”) can be significantly lower.
Faster Transactions: Moving some of the work off-chain means transactions can often happen in seconds or minutes instead of hours.
Layer 1 vs. Layer 2 and Beyond
Layer 1 (L1): This is the foundation, or main blockchain, like Ethereum, Bitcoin or GalaChain. It provides the most security but often struggles with speed and high costs as it grows in popularity.
Layer 2 (L2): These are secondary systems that sit on top of Layer 1 and help by processing transactions faster and more efficiently without compromising too much on security.
Think of Layer 1 as a big city with traffic congestion. Layer 2 is like a fast train running above ground to take people out of the crowded streets and speed up their commute. The existence of this train benefits not only the riders of the train, but the car commuters as well, who can then enjoy less congested streets below.
In a world where blockchain usage is growing daily, the technology needs to scale quickly. Layer 2 solutions are not just an option but a necessity for the future of Web3. They ensure that decentralized platforms can function smoothly without making users deal with high fees or slow transaction times.
With the rise of popular Layer 2 solutions like Polygon and Arbitrum, users can look forward to a blockchain world where interacting with decentralized apps and services is as seamless as using traditional web apps—fast, cheap, and scalable.
GalaChain is a Layer 1 blockchain with the potential for integrated Layer 2 systems. Once the GalaChain ecosystem is used by enough external developers and users, organization will be streamlined through the use of multiple layers.
Welcome back to another edition of DevSpeak! In this series, we’re all about filling you in on the basics of terms you’ve probably heard tossed around in tech circles without fully understanding what they mean. Today, we’re diving into one that’s been around a while but is still causing its fair share of confusion – cloud computing!
Imagine you’re organizing a huge event. You could either buy everything yourself—chairs, tents, catering equipment—or you could rent all of these items for the day, using them only as long as you need, and then return them. This is more or less how cloud computing works for businesses and individuals in today’s world.
Cloud Computing, Defined
At its core, cloud computing is the delivery of computing services such as storage, processing power, databases, and software over a shared connection, often referred to as “the cloud.” Instead of owning physical hardware or software on your premises, you access and use these resources online, typically through a service provider like Amazon Web Services (AWS), Microsoft Azure or Google Cloud.
Think of cloud computing like using electricity. You don’t need to own a power plant to run your lights, fans, or electronic gadgets. You simply plug into an outlet and pay for the amount of electricity you consume. Similarly, cloud computing lets you “plug into” vast computational resources and only pay for what you use without owning any of the underlying infrastructure.
While this cloud connection typically happens over a standard internet connection, providers typically create permissioned and secure ways to access resources.
The Silver Linings of the Cloud
There’s lots of ways that the idea of the cloud has been amazingly beneficial in people’s lives. We often don’t even think about all the ways we interact with cloud services today, even though many things we do are facilitated by cloud computing under the hood.
Cost Efficiency
Using the cloud means you may not have to buy expensive hardware or software upfront.
Imagine a startup needing 100 powerful servers for just one week to run some tests. Buying 100 servers would be incredibly expensive, and those servers might sit unused afterward. Instead, they can rent these servers in the cloud for the short time they need them and save a lot of money.
Scalability
Let’s go back to our party example. Oh no! More guests showed up than expected! You’ll have to scramble for more chairs, tables, and food.
In traditional computing, if your website traffic unexpectedly spikes, you’d need to buy more servers – expensive and time consuming. With cloud computing, however, resources can scale automatically. If your needs grow, you can instantly be allocated more computing power or storage from the cloud. Similarly, if traffic drops, you only pay for the reduced amount of resources used without having bought extra servers you don’t need anymore.
Flexibility
When all the tools are yours, your flexibility is limited to your toolkit.
Cloud computing allows businesses to be flexible in how they use their resources. If your project requires more computational power for a short period, you can ramp up easily without complicated logistics. If you need less, you can scale back. No long-term commitments are required, and there are enough cloud providers out there that they have an interest in keeping their customers happy.
Accessibility
Physical servers are in a place, and setting up secure ways to access your resources anywhere you want is complicated and a potential security risk. The cloud is already set up for this.
The cloud allows you to access files and applications from anywhere in the world, as long as you have an internet connection. No matter where you are, you can access the tools you need.
The Darker Side of the Cloud
While cloud computing has plenty of benefits, it’s not without its downsides.
Security and Privacy Concerns
When you rent something, you don’t have full control over it. You have to trust whoever does have full control over it.
When you store your data on someone else’s servers (in the cloud), there’s a risk of breaches or data leaks. While cloud service providers invest heavily in security, they can still be targeted by hackers. Not all cloud services are equal – look carefully at the ToS on a cloud provider and make sure you’re comfortable with the level of access they themselves have to your data.
Downtime and Outages
Back to the party example — delivery truck is stuck in traffic. Nothing you can do. You’ll have an event without seating for a while.
Even large cloud providers experience outages. If their systems go down, you could lose access to your tools and resources. It’s worth noting that they typically will know what they’re doing and work hard to fix problems. Being out of control can be hard, however, and with cloud services you’ll have to accept that there may occasionally be issues that are out of your hands.
Ongoing Costs
While renting might save you money upfront, long-term rental fees can add up. For some businesses, using the cloud can become more expensive over time than buying your own resources.
Cloud services do what they do because they’re trying to make money. Expanding your own infrastructure can save you money in the long run, so it’s important to make sure that cloud computing you use is mutually beneficial.
Vendor Lock-In
One more visit to the party example. Let’s say that delivery truck does show up, but they brought double the tables and no chairs! At this point, it’s tough to get another truck from another company out there without sending away the one that has the rest of your party supplies… even if minus chairs.
Switching between cloud providers isn’t always simple. Each provider has different systems, and moving your applications and data from one to another can be time-consuming and costly. It’s best to do research on any cloud provider you work with an ensure that you’re pretty likely to be happy with their service.
Parting the Clouds
Cloud computing has revolutionized the way we think about accessing and using digital resources. By making powerful tools available over the internet, the cloud has changed the way both businesses and individuals interact with the digital world. However, like any technology, it comes with trade-offs – just because something can be handled on the cloud doesn’t mean it always should.
Much like renting versus owning, cloud computing allows companies and individuals to use what they need when they need it, without the hefty upfront cost. The functionality that these services have unlocked across the whole of the internet has opened up new ways to build, collaborate and navigate life.
That’s it for today, but we’ll be back soon with another DevSpeak!
TOKEN2049 Singapore, one of the most anticipated crypto events of the year, is taking place on September 18th and 19th, 2024. This prestigious gathering brings together the leading minds and companies in Web3 to discuss the future of the blockchain industry, and we’re thrilled to announce that key Gala team members will be there to represent our growing ecosystem!
What is TOKEN2049?
TOKEN2049 has earned its place as a premier event in the crypto calendar, held annually in Singapore and Dubai. This event serves as a global hub for blockchain enthusiasts, developers, investors, market makers and key industry leaders. TOKEN2049 shines a spotlight on the latest trends, technologies, and ideas in the Web3 space, creating unparalleled opportunities for networking and innovation.
With thousands of participants from across the globe, TOKEN2049 is a melting pot of ideas that are shaping the future of blockchain. Founders, entrepreneurs, investors and developers converge to exchange insights, form partnerships and explore the immense potential of decentralized technologies.
For Gala, TOKEN2049 is an exciting platform to showcase our vision for a decentralized future, one that goes far beyond gaming and entertainment. As we continue to evolve, the opportunities presented by TOKEN2049 couldn’t come at a better time.
Partnerships and Collaborations
In addition to giving us a chance to make plans and build with existing strategic partners, the event provides us with the perfect opportunity to explore new partnerships that align with our mission of empowering communities through blockchain. As the global Web3 industry rapidly expands, we’re looking forward to engaging with potential partners who share our vision and can bring fresh ideas to our growing ecosystem.
Expanding Our Mini-App Gaming Ecosystem
Our recent success with the Telegram Mini-App gaming ecosystem has opened doors for even more growth and collaboration. TOKEN2049 is the ideal venue to discuss how we can expand this ecosystem even further, offering more opportunities for developers and gamers to engage with Gala-powered experiences while collecting awesome rewards.
$TREZ and Potential Announcements
TOKEN2049 could also be the stage for an exciting announcement regarding $TREZ, our latest venture in the world of decentralized gaming and assets. Get ready for $TREZ to enter the wider crypto community, creating excitement and momentum for our newest projects.
What We Bring to the Table
At Gala, we’ve always believed in the transformative power of decentralization and community-driven innovation. Our presence at TOKEN2049 will focus on highlighting the capabilities of GalaChain, our Layer 1 blockchain designed to handle the high transaction volumes demanded by modern applications, especially gaming. GalaChain’s versatility, efficiency and low fees make it a cornerstone for scaling Web3 industries beyond entertainment, including healthcare, finance, supply chain management and more.
TOKEN2049 is the perfect platform to demonstrate how GalaChain, powered by multiple DePINs and our growing node ecosystem, is setting new standards for scalability and security in the blockchain space. We’re eager to connect with like-minded innovators who are ready to collaborate on this revolutionary journey.
Looking Ahead
As we prepare for TOKEN2049, we’re energized by the possibilities this event will bring. The connections, ideas and partnerships formed here will shape the next steps in Gala’s evolution, pushing us closer to realizing our vision of a decentralized world powered by GalaChain.
