What is Yield farming and how to stake LP tokens for passive income?
The world of Decentralized Finance (DeFi) has seen a significant growth in recent months it’s now at the forefront of crypto innovation. What makes DeFi applications unique? They are permissionless, users can interact with these DeFi protocols without having to provide KYC and can access the same opportunities offered by traditional banking systems
Anyone with a specific crypto wallet can connect and use these protocols, the smart contracts enables users to borrow or lend money without any financial background check
Users can provide liquidity and became LP token holders, anyone with these LP tokens can do something called Yield farming or liquidity mining.
What is Yield farming?
Yield farming, also referred to as liquidity mining, is a way to generate passive income with rewards generated through taking your LP tokens
As mentioned to hold LP tokens you must be a liquidity provider, these LP tokens can be staked for earning rewards.
Where do rewards come from?
In most cases these rewards are distributed by crypto projects overtime as a way of rewarding the community for supporting the protocols cause without users providing liquidity the (DEXs)decentralized exchanges will not function
ie SundaeSwap be distributing 500,000 SUNDAE tokens to be allocated daily over at least the first six months of the DEX’s operation to yield farmers participating in the following liquidity pools:
