A yield farming strategy aims to generate a high yield on capital. The steps will involve lending, borrowing, supplying capital to liquidity
pools, or staking LP tokens. A straightforward way of getting APY on your capital is through lending and borrowing.
To understand the process of yield farming, we should have a clear idea about its background concepts such as liquidity pools, which are
smart contracts to provide required liquidity of decentralized applications. Liquidity pools require liquidity provider users to function
properly. These pools are used in different platforms to provide required liquidity in various cryptocurrencies. Liquidity providers can stake
their holdings in liquidity pools to receive rewards that are generated by the underlying DeFi platform.
These funds are used by decentralized applications such as decentralized exchanges and instant exchanges which provide required
liquidity to conduct exchange transactions. Some strategies involve investing rewarded funds in other liquidity pools to provide more
profits. In a relatively fast time some complicated strategies were developed for yield farming to maximize its returns.
Since this type of investment or farming works using smart contracts, it provides great opportunities for crypto holders to make significant
profit with their holdings. This type of investment provides chances that could be considered risk-free, because everything in this process
takes place according to smart contracts, which are trustless procedures.
However, providing liquidity for DeFi applications could return various amounts of profits or rewards. To calculate the highest returns that
various farming platforms offer, the concept of total value locked (TVL) is introduced which could be used to evaluate the return of
different DeFi platforms.
Strategy:
It works by looking for discrepancies between the price and the RSI indicator. Normally, both the price and the RSI move in roughly the same
direction. However, there are times when the price is falling but the RSI is rising, and vice versa. This only happens when there’s a subtle shift in
buying or selling volume and is a tell-tale sign that momentum is in the early stages of reversing. Together with the RSI divergence, the Yield
Farm strategy generates profits for investors by staking crypto assets in AMM (automated market maker) farms targeting coins with high
APY.
We use RSI divergences to measure momentum by calculating the average number of gains and losses over a 14-day period. The indicator line
oscillates between 0 and 100 and can be used to highlight when an asset is “overbought” or “oversold.” A channel between 30 and 70 is most
commonly used to show this. When the asset breaks through down of the channel below 30, the asset is considered “oversold” and the price
will likely likelly rise. Therefore this triggers a buy and yield farm signal. Conversely, when the asset breaks out of the channel above 70, the
asset is considered “oversold,” which means the price will come back down. This triggers the sell and yield un-farm signal. This strategy
periodically claims LP (liquidity provider) rewards, sells them, and re-stakes the profits to generate more LP rewards.
