As inflation and the cost of goods rise in countries such as Indonesia, the Philippines and India, investors are looking for new avenues to put their money to use.
As emerging market economies face a higher rate of inflation due to quantitative easing and increase in spending from the government with central banks and governments have pumped US$25 trillion into economies, the flow of money has raised concerns worldwide regarding the rising inflation.
With inflation rising steadily, it is getting difficult for investors to earn a yield on municipal bonds, securities or deposit certificates as the rising inflation leads to negative yield for investors.
However, yield farming, a new phenomenon in the blockchain industry, provides institutional investors with a new avenue to allocate resources.
Why institutional investors are exploring yield farming
Yield farming, also known as liquidity mining, is a method of earning money from digital assets by providing liquidity to a software protocol. In some ways, yield farming and staking are similar. However, there is a great deal of intricacy going on behind the scenes. It frequently collaborates with liquidity providers (LPs), who provide funds to liquidity pools.
Liquidity pools are essentially a smart contract with funds. LPs are compensated for supplying liquidity to the pool. This incentive might come from the underlying DeFi platform’s fees or another source. Some liquidity pools payout in a variety of coins.
These reward tokens can then be put into other liquidity pools to receive more prizes, and so on. You can see how highly complicated methods might evolve very fast in a decentralised environment. However, the essential concept is that a liquidity provider puts cash into a liquidity pool in exchange for incentives.
Yield farming is mainly done on Ethereum with ERC-20 tokens, and the rewards are generally also ERC-20 tokens. Cross-chain bridges and other such improvements, on the other hand, may one day allow DeFi apps to be blockchain agnostic.
As a result, they might run on other blockchains that enable smart contract functionality.
To get high yields, yield farmers would often shift their finances around a lot between different techniques. As a result, DeFi platforms may provide additional financial incentives to attract more money to their platform.
Liquidity tends to attract additional liquidity, and therefore investors are exploring yield farming as an alternative to corporate bonds, securities and fixed deposits provided by banks.
How blockchain startups are disrupting the field of finance
Blockchain startups such as Impulseven are disrupting the field of finance by building a complete decentralised finance ecosystem that offers a range of features such as yield farming, lending, staking, trading all in one interface.
The organisation’s goal is to make DeFi technologies accessible to everyone by creating a platform with the highest level of transparency, reliability, and efficiency.
It is based on the Ethereum network and uses the ERC-20 Impulseven token to function. The protocol also facilitates money transactions by removing the need for expensive market intermediaries and third-party facilitators.
While banks are still vital, the expanding use of cryptocurrency, together with its underlying blockchain and smart contracts, gives users the ability to perform trustless transactions, making old methods an option rather than a forced choice.
DeFi systems like Impulseven embody the advantages of blockchain and shared ledger technology.
Consequently, trustless solutions are becoming more popular for completing even the most complex transactions without the necessity of intermediaries or the risk of being held hostage by a third-party organisation.
The risks of using a third party in transactions are not limited to traditional finance; in the crypto business, decentralised marketplaces and trading networks have grown significantly in Asia.
We will see more institutional investors exploring yield farming protocols as an alternative source of asset allocation in 2021 as the risk of inflation takes over the Asian market as central banks and the government try to stabilise the economies.
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