The Beginner’s Guide to Yield Farming on Binance Smart Chain
From the top yield farms to the best wallets, everything you need to know about yield farming on the Binance Smart Chain.
Decentralized Finance (DeFi) continues to create headlines and maintain its parabolic growth since the summer of 2020. Yield farming remains a popular tool in DeFi for earning profits from long-term investment.
If you are a crypto enthusiast or someone who wants to make a real profit from digital currencies then it is high time you gave attention to Yield farming on the Binance Smart Chain.
Compared to Ethereum, Binance Smart Chain is a relatively new platform. But many yield farmers have already got phenomenal returns on their investments in this DeFi ecosystem.
Read on to learn more about yield farming on BSC, the best wallets to connect to BSC, and most importantly the top yield farms on the BSC network.
Let’s begin with a quick introduction to what exactly is DeFi and yield farming
What is DeFi?
Decentralized Finance, or DeFi, is an umbrella name for many financial solutions based on cryptocurrencies or blockchain that aim to eliminate financial intermediaries.
DeFi, in its most basic form, is a system in which financial products are made available on a public decentralized blockchain network. These products are then accessible to anybody without the intervention of intermediaries such as banks or brokerages.
Unlike a bank or brokerage account, DeFi does not require a government-issued ID, Social Security number, or proof of address.
With DeFi, buyers, sellers, lenders, and borrowers connect peer to peer over a strictly software-based blockchain rather than a firm or organization.
The software developed on blockchains is responsible for the handling of financial transactions in DeFi. With the help of blockchain, several entities can keep track of transaction history. Therefore transactions are not controlled by a single, central source.
Centralized systems and human gatekeepers can slow down and complicate transactions while giving users less direct control over their funds. DeFi is unique in that it extends blockchain's use beyond simple asset transfer to more complex financial applications.
You have got a basic understanding of DeFi now. Let's next look at what yield farming is all about.
What is Yield Farming?
In the world of Decentralized Finance, yield farming remains a hot trend. It’s been a year since yield farming took the crypto ecosystem by storm. Since then, it has just grown even more by leaps and bounds.
Investors are rewarded handsomely for investing their cryptocurrency tokens in yield farms. They can harvest these rewards and cash them out.
Still, confused about how this works?
Yield farming is similar to taking out a bank loan. When a bank lends you money, you must repay it with interest. Yield farming works similarly, but this time the banks are crypto investors like you.
Yield farming involves a liquidity provider and a liquidity pool. An investor that deposits funds into a liquidity pool is known as a liquidity provider. The liquidity pool is a cash-filled smart contract. The automated market maker (AMM) model is used to perform yield farming.
What is the AMM model? An AMM generates liquidity pools using Smart contracts (pre-programmed algorithms). Instead of announcing the price at which an item can trade, these liquidity pools carry out trades using pre-programmed algorithms stored in smart contracts. The traditional order book, which stores all "buy" and "sell" orders on a cryptocurrency exchange, is replaced by AMM.
Let us get into a little more detail.
Liquidity providers (LPs) deposit cryptocurrency into liquidity pools. Most DeFi marketplaces rely on these pools to let users borrow, lend, and swap crypto tokens.
DeFi users have to pay a trading fee to the marketplace. The marketplace then split the trading fee with liquidity providers based on their contribution to the pool's liquidity.
Got it? It is simple: Invest crypto to earn more crypto. Therefore, Yield Farming is a method of allowing crypto investors to profit from their investments.
Shall we understand a little more about the Binance Smart Chain before we dive into the mechanics of yield farming on the Binance Smart Chain?
What is Binance Smart Chain (BSC)?
Binance Smart Chain is a blockchain service that allows developers to create their decentralized apps using smart contracts. This service came into action in September 2020.
Binance Chain was not capable of hosting decentralized apps (dApp). It was one of the major shortcomings of the Binance Chain. That is why they introduced Binance Smart Chain into the field.
The Binance Smart Chain not only hosts dApps but also could overcome many shortcomings of the Binance Chain. Binance Smart Chain allows developers to create decentralized applications (DApps) within the Binance Chain ecosystem, allowing for the creation and adoption of DeFi products and solutions.
BSC can enable fast transactions like Binance Chain while expanding the features and capabilities of the Binance chain.
Advantages of BSC
Ethereum was one of the very popular decentralized blockchains and a forerunner in the DeFi market. Due to high traffic, the platform gets congested lately.
Ethereum has proved not to be a viable platform for ordinary users. Due to the sharp increase in the transaction fees (gas fees), casual users had to leave the Ethereum platform. Sadly, it remains the playground for large whales who have enough hundreds of thousands of dollars in their wallets to play.
This is where BSC became the savior of typical crypto investors. The advantages of BSC and the main distinctive features of BSC that make it popular among normal users are:
- Low Cost: Believe it or not, Binance Smart Chain levies gas fees (transaction fees) roughly 20 times lower than Ethereum blockchain. Isn't this amazing? For DeFi customers, the surge in transaction fees on Ethereum has resulted in substantial friction and costs.
BNB is the official token of the Binance Smart chain. On BSC, the transaction cost is dramatically low with a very minimum BNB fee.
This low overhead cost encouraged a broader range of investors from various regions and economies to plunge into the BSC platform. For example, a transfer of 10 BNB valued at $300 will cost you roughly $0.01.
- Increased Productivity: The consensus method used by Binance Smart Chain is similar to the one intended for Ethereum 2.0. This statement means that BSC is not reliant on mining and that transactions are faster than in other networks.
- Bridging Capability: Another impressive feature of BSC is that it can interconnect with the Binance Chain. Both blockchains have in-built cross-chain transaction properties.
For example, suppose that a user has a Trust Wallet. This user can switch between BEP2 and BEP20 tokens without leaving his wallet. BEP2 is a token standard on Binance Chain whereas BEP20 is a token standard on Binance Smart Chain.
- Multiple Integrations: Binance Smart Chain is a developer-friendly platform. It is a robust blockchain development platform that supports more than 25 projects, including Chainlink, Band Protocol, Swipe, Ontology, Trust Wallet, etc. Many more smart Internet protocols are being developed or deployed on the Binance Smart Chain.
With this development and implementation, most of the Ethereum assets are available to Binance Smart Chain DeFi investors also.
- Cross-Chain Infrastructure: Through cross-chain architecture, BSC can connect with Binance Chain and other dominant crypto assets. But the remarkable fact is that BSC is compatible with Ethereum Virtual Machine. Therefore BSC can support and integrate with tools and solutions built on the Ethereum blockchain.
- BNB Staking: The emergence of BNB staking is another significant characteristic of the Binance Smart Chain. This feature has resulted in the high productivity of the Binance ecosystem.
What is BNB staking? The BSC introduced a new Consensus mechanism called Proof of Staked Authority (PoSA). With this system, the Binance Smart Chain validators get compensated in BNB for fulfilling tasks on the blockchain. Thus the network participants are incentivized and assured stability without sacrificing transaction speed.
Moving Funds on Binance Smart Chain (BSC)
Before initiating any transaction, there should be funds available in your BSC wallet. Depositing funds onto the Binance Smart Chain can be done in a variety of ways. We'll go over two of the most popular methods here:
- Withdrawing assets from Binance and transferring them to the Binance Smart Chain
- Using the Binance Bridge to transfer payments
Funds from Binance to BSC
Binance users can deposit funds into their BSC Wallet directly from Binance. The only requirement is that you need to make sure that the money is compatible and available on BSC. Also, make sure that the network to which you're withdrawing the funds is correct.
It's worth noting that the rates charged by the various networks vary significantly. For example, withdrawals on the BSC network would cost you only in cents whereas in Bitcoin and Ethereum networks the fee is above ten dollars.
Using Binance Bridge
Binance platform recently announced Binance Bridge V2, a revolutionary new bridge service that provides access to inter-blockchain liquidity for all popular blockchain networks. The new bridge service brings Binance Chain ecosystems significant assets like BUSD, USDT, and ETH.
The limitation is that each network supports only a limited number of assets. It is worth noting that there is a daily limit on how much you can send to BSC.
In the first version of Binance Bridge, the technique for swapping tokens has two categories: Peg-In and Peg-Out. Through Peg-In, users can convert native tokens to equivalent pegged tokens on the Binance Chain or Binance Smart Chain. Meanwhile, the Peg-Out technique allows users to convert pegged tokens to native tokens on Binance Chain or Binance Smart Chain.
Let’s have a look at how to swap tokens from different networks to BSC.
Swapping Tokens from Different Networks to Binance Chain
- Install your extension wallet. It can be Binance Extension Wallet or MetaMask
Binance Extension Wallet is a Crypto Wallet for Binance Chain and Binance Smart Chain. With this wallet, you can send and receive funds on Binance Chain and Binance Smart Chain. This wallet also supports cross-chain transfers between both Binance blockchains.
- Navigate to the Binance Bridge page. By default, you will use V2.
- Click on the button Connect Wallet to connect with your wallet.
- Enter the password and unlock your wallet. Binance bridge will generate a destination address for you. You can see the destination address in the corresponding box after you open the wallet.
- Choose the asset of your choice (USDT, ETH, BTC, BTCH, etc.) to be transferred.
Binance Bridge supports almost 35 popular cryptocurrencies. Binance bridge can move your USDT, BUSD, or ETH across different blockchains quickly. The whole list of possible assets is available from this link: https://api.binance.org/bridge/api/v2/tokens.
- After selecting the assets, select the source and destination networks.
Please make sure that the destination network must be Binance Chain or Binance Smart Chain. You can click on the arrow button to switch between these two networks.
- Enter the Swap Amount and then confirm the transaction.
The transaction is never free of cost. You will have to pay a fixed amount of network fee.
- To transfer from another network to the connected wallet network, you will have to deposit your tokens before closing the transaction window.
You have to initiate a single transfer; the system monitors only the first transfer transaction.
- Finally, you can view the Transaction Result on the screen.
You can verify the entire swap process from the History board available on the platform.
Binance Bridge will block the tokens and finish the Binance Smart Chain binding once the transaction is complete.
As I have already mentioned, the Binance Smart Chain is not gas-free for transactions. BSC uses Binance Coin (BNB) as its native token for gas fees, the same as how Ethereum uses Ether to pay transaction fees. As a result, before you begin your yield-farming adventures, you will have to transfer some BNB to your BSC wallet.
Speaking of wallets, before we get into the details of yield farming on Binance Smart Chain, you should be aware of the most used BNB wallets.
Top 5 BNB Wallets
1. Trust Wallet
It is considered as the Binance exchange's official wallet. With Trust wallet, you can play blockchain games, access the most up-to-date DApps and DeFi platforms, and even earn bitcoin interest easily.
With a Trust wallet, your crypto is safe from hackers and spammers. You can even exchange crypto without leaving the app.
Trust Wallet, in addition to BNB, allows you to manage dozens of other assets across 40 blockchains. Without leaving the app, you can stake a variety of coins.
2. MetaMask Wallet
MetaMask is popularly known as an Ethereum wallet. Thankfully, it has now been updated to connect with the BSC network. So we can all enjoy the years of research and development that have gone into the making of this innovative cryptocurrency wallet.
Even on the BSC platform, there are many protocols that connect only to MetaMask. CryptoBlades, one of the most popular NFT blockchain games on BSC, requires a MetaMask wallet to be connected to it if you wish to play and earn their SKILL tokens.
3. Atomic Wallet
Though Atomic Wallet is famously known as Bitcoin Cash wallet, it is a decentralized cryptocurrency wallet with a user-friendly design that supports over 500 other coins and tokens.
It is possible to swap more than 60 crypto-assets anonymously with instant cashback for each transaction. An instant exchange with cashback! You can earn returns once a week, once a month, or once a year by staking different coins.
The project's ecosystem is user-friendly and comfortable for both beginners and experts in the field of cryptocurrency. The wallet is secure since customers’ private keys are encrypted and never leave their devices. A customer can fully control his funds.
The Atomic wallet also offers 24*7 live support for its users. To create a BNB wallet with Atomic, all you have to do is download the app to your phone or computer and create a password.
The Guarda wallet is a non-custodial, multiplatform, and decentralized wallet that extends support to more than 45 coins and almost 10k tokens. Guarda extends its service to 50+ blockchains keeping their customers’ data safe and secure.
You can buy cryptocurrency directly from your wallet using a debit or credit card (Simplex payment service). Guarda also provides SEPA transfers in a few easy steps. Using SEPA, if you purchase assets for 198 USD, around 2USD would be a payment service fee.
Guarda is currently collaborating with foundations like Ethereum Classic, Zcash, Binance, and Bitcoin Gold.
Exodus claims to be one of the best crypto wallets for desktop and mobile. This wallet was built mainly for crypto beginners but is ideal for hardcore crypto enthusiasts as well.
This multi-platform wallet provides a hardware wallet too (Trezor). Exodus supports around 143 cryptocurrencies. Another feature of Exodus is that users can sync their desktop and mobile wallets for more transparency and ease of use.
With built-in wallet capabilities, you may swap one asset for another without registering, in a matter of seconds. You can diversify your portfolio. You also get 24*7 live human support from Exodus.
Exodus has some drawbacks, including closed source code. The remarkable point is that the company never has a history of reported incidents of money loss or other difficulties.
Now you know about four popular wallets for yield farming on BSC. I'm sure the next question you have in your mind is which one to choose from these.
How to Choose the Best Wallet?
Have you heard of a Non-custodial wallet? A Non-custodial wallet does not hold private keys. The field experts say that the best wallet for any cryptocurrency is a non-custodial wallet.
A non-custodial wallet might be a cold hardware wallet like Ledger or a more handy but less secure software wallet. The happy news is that all the above wallets are non-custodial!
Therefore, it would be optimum if your selected wallet can support account security functions such as multi-signature, two-factor authentication, and biometric login.
However, if you're looking for a wallet for yield farming on the Binance Smart Chain, MetaMask and Trust wallet are both good choices. Guarda also supports the BSC network.
Yield Farming on BSC
Are you ready to dive into the world of yield framing on BSC? Now that you've loaded up your wallet with some assets and BNB, let us understand yield farming on BSC.
Many unique and cloned yield-farming platforms have mushroomed in the ecosystem, generating a steady stream of opportunities for the passionate yield farmer, drawing parallels to the DeFi summer of 2020.
In general, the main steps involved in yield farming are:
- The first step is to create a wallet.
- You need a Binance Exchange account to do transactions. So create an account online.
- Purchase your first crypto in your Binance account with the help of your wallet.
- Deposit your crypto in various liquidity pools.
- Earn LP tokens.
- You may do more activities with LP tokens.
- When you are ready to enjoy the profit, withdraw the deposited liquidity and cash out to fiat.
If you analyze, the yield farming projects are mainly in three categories: Decentralized exchanges, yield aggregators, and Non-Fungible Tokens (NFTs). Please keep in mind that this is not a complete list; nonetheless, it is an excellent place for novices to start their adventure with the BSC ecosystem.
Lending platforms are one of the simplest ways to begin yield farming on BSC. The functioning of these platforms is similar to lending and borrowing in a typical financial institution.
DeX (Decentralized Exchanges)
Decentralized exchanges (DEXs), arguably one of the most popular sites for yield farming, allow users to offer liquidity for the platform in exchange for liquidity provider (LP) tokens. These LP tokens are then deposited in a variety of pools to generate transaction fees as well as more tokens.
These platforms pool liquidity to participate in automated yield optimization schemes, allowing users to share gas expenses while maximizing profits.
If traditional yield farming doesn't tickle your fancy, a sprinkling of NFTs might just do the trick. In NFTs, more mining power equates to increased yield.
The Top 5 Yield Farms on BSC
Over the past year, numerous DeFi protocols have popped up on the BSC ecosystem. There are plenty of great choices out there and new opportunities are being introduced almost daily. Here are 7 DeFi protocols that have done well.
We have just given short introductions to make you aware of their existence. You must do more research on each before investing in them. We have in-depth articles on these topics, so make sure to check them out.
PancakeSwap is the first billion-dollar project on the Binance Smart Chain and one of the leading automated market makers. This was launched in Sep 2020 and is actually a fork of UniSwap. With a current 24-hour trading volume of above $800 million, the decentralized exchange protocol has undoubtedly risen to the top of the DeFi industry.
Its native token CAKE. There are several ways in which users can earn yields in PancakeSwap. Lending and Staking is one of the most common methods to earn high yields.
Through lending, Liquidity providers can earn fees and liquidity mining incentives by depositing crypto assets into PancakeSwap liquidity pools. They receive liquidity pool tokens in exchange for providing liquidity. These LP tokens are further staked to earn CAKE tokens.
PancakeSwap also rewards DeFi users with lotteries, native NFT collection, and prediction markets.
An automated money maker (AMM) and yield farming protocol, ApeSwap is quite similar to PancakeSwap. The native token is $BANANA.
You can maximize the returns on your investment with BANANA token farms. You can then harvest your BANANA rewards and stake them in BANANA pools to earn even more BANANA.
Venus is a decentralized lending and borrowing algorithmic money market with borderless stablecoins launched in October 2020. This is a scalable platform exclusively built on Binance Smart Chain for fast and cost-effective transactions.
Users can deposit crypto assets such as BNB, ETH, and stablecoins with Venus. Users can earn APYs on funds held within the protocol based on market demand for that asset. Interest can be used as security to borrow more digital assets or to mint VAI (Venus' stablecoin). VAI is the world's first decentralized stablecoin built on Binance Smart Chain that is backed by other stablecoins and crypto assets without any centralized control.
Deposit returns might fluctuate depending on the supply and demand for borrowing. In general, more borrowing demand or less lending availability will raise interest rates, allowing depositors to earn a higher APY.
Users of the protocol can earn interest by depositing a variety of supported coins or digital assets. These deposits serve as a supply and are used to secure loans or to create synthetic stablecoins.
Suppliers will receive different vTokens based on the deposited assets, representing their claim on the underlying collateral. Although this is one of the safer ways for yield farming, the returns are relatively lower. The Smart contract failure risks are also still prevalent.
Autofarm is a cross-chain yield aggregator. It allows users to earn decent returns on their assets from yield farming pools by simply staking in Autofarm vaults. Autofarm is all set to aggregate yields and promotes decentralized trading in the most smooth way possible.
With a total value locked (TVL) of about $1 billion, more than $20.7 million 24-hour trading volume, and a market cap of $124 million, this few-month-old protocol has seen extraordinary growth.
Autofarms presents two products for its users, Vaults, and AutoSwap. Vaults is a yield farming platform that systematically compounds yields for the best returns, whereas AutoSwap is a DEX aggregator that gives users the best pricing for their DEX exchanges.
Yield farms of AutoFarm are bountiful, as one might expect. There are more than 120 token farms/ vaults with high APYs. Their costs for dealing with vaults and swap function are very minimal, which encourages interaction and yield farming on Autofarm even more.
5. Dego Finance
Users can utilize Dego Finance to farm for assets by staking NFTs. Users can mint an NFT with any DEGO (governance and equity token of the Dego ecosystem) or BEP-20 token (standard token of BSC).
NFTs are created randomly and come in six different grades: bronze, silver, gold, platinum, diamond, and Kryptonite.
The productivity level of an NFT determines its mining efficiency. Better grades of NFTs such as Kryptonite have higher mining efficiency. They can make more profits comparatively.
However, because the value of each staked NFT in any of the pools is a fixed 200 DEGO for each address, you can't blindly stake every unusual NFT you can get your hands on.
Before You Go...
Yield farming, like any other project, has dangers. It may range from smart contract risks to liquidation and exit frauds. DeFi users must do their research on the protocol they are planning to invest in to avoid losing their assets to scams and rug pulls.
Although APY is a helpful metric for evaluating a DeFi yield farm, remember that it is fickle, and token prices can swing dramatically.
But if you're brave enough to take the chance, you may be able to get a bountiful harvest from your yield farms on the Binance Smart Chain.