How to beef up your liquidity pool yields with the Beefy. Finance DApp in Trust Wallet
The width and breadth of the potential for blockchain seems to be truly endless. While not every string to its bow is necessarily one that shoots straight, it’s become normal to expect the unexpected when it comes to new blockchain use cases. So far, we’ve looked at the world of art, video games, and governance systems.
So now seems a perfect time to tick another fairly innovative implementation of blockchain technology off the list: yield farming.
While we’ve come a long way since the days of crypto cowboys and the wild decentralized west of fundraising, it looks like we’re in for another ride when it comes to decentralized financial services.
DeFi, as it’s known, is the new kid on the block(chain) capturing the imagination of the crypto world. After a fairly stagnant period of real blockchain innovation (there are only so many blockchain voting mechanisms or logistics solutions we can cope with), DeFi really is breaking new ground. For all of you looking to dive into the world of liquidity pools and yield optimization, let me introduce you to Beefy.Finance.
Setting up Your Own Personal Yield Farm
Beefy.Finance acts as a (fairly) simple tool for you to maximize your crypto steak stakes and mooove your funds between different liquidity pools on the Binance Smart Chain. Doing this yourself manually is inefficient and, to be frank, tiring. Some automation in the process is always well received. But before we get ahead of ourselves, let’s take an extremely brief look at what a liquidity pool is.
What is a liquidity pool?
A liquidity pool serves two essential purposes:
It allows you to exchange certain pairs of cryptocurrency, without needing to go through a licensed, centralized order book exchange. There’s no KYC here, no sign up, just pure swapping with no middleman needed. You do however pay a small fee to use the service, usually much less than on a centralized exchange.
It also allows you to [stake](https://academy.binance.com/en/articles/what-is-staking) (temporarily lock up) pairs of tokens to each pool and start receiving a yield. This comes from the transaction fee that people pay to swap their tokens. Your contribution to the whole pool is then represented by a liquidity pool token. This, together, is known as yield farming.
All sounds pretty good right? To put it simply, these services known as liquidity pools need to have a large amount of tokens available to swap in order to avoid large price swings. If you stake your tokens, which gives those platforms liquidity, you receive a percentage of transaction fees as yield.
You might have already heard of the liquidity pool Uniswap on the Ethereum network, one of the most well known in the blockchain space. You can read more about them here in the Binance Academy. On Binance Smart Chain, the most popular platform is Pancake Swap. Both are integrated natively into the swap function of Trust Wallet.
Getting to the Meat of the Matter
For anyone out there who is trying to maximise their yields from the various different liquidity pools on the market, it’s a good idea to use a yield farming optimizer.
As Beefy runs on the Binance Smart Chain, it provides a slightly different experience to other yield optimizers such as yearn.finance that run on the Ethereum network:
The Binance Smart Chain has much lower fees in comparison to the Ethereum network. This means that you can move tokens at a much lower cost, improving your yields.
The Binance Smart Chain utilizes Binance’s unique infrastructure, which allows for much more freedom and creativity than building purely on the Ethereum platform. The functionality and scope of yield optimizers are greatly increased. This ultimately means less work from your side and more automation from the optimizer.
So What Exactly Are They Doing Again..?
The mechanics of the platform work the same as other yield optimizers, but due to the two factors laid out above you can make real improvements to your *annual percentage yield (APY). *
Beefy Finance is essentially acting as an aggregator for all the **DeFi projects you know and love that offer staking returns or yield from a liquidity pool.
If you were going to do it the “old fashioned” way (which to be honest still isn’t that old fashioned), you would take our liquidity pool tokens and cash them out to get our share of the pool’s transaction fees. Then you simply reinvest. But this all costs fees, time, and effort.
Beefy.Finance simply auto-reinvests your gains for you, without you having to personally pay any fees or fiddle around with each individual platform.
What does this mean at the end of the day? A higher APY! But there is a catch… albeit a very small one. You simply need to pay a transaction fee to Beefy.Finance which will in fact be smaller than if you attempted to do all of the above yourself.
The BIFI Token: There’s More to It Than Meats the Eye
The Beefy platform doesn’t just allow you to optimize your yields, you can also get more involved in the platform by holding their governance token $BIFI.
If you need a quick top up on how exactly governance works with decentralized projects, then take a look at my previous article right here.
As with all these DeFi projects, it’s easy to lose grasp of the bigger picture of what’s going on. Let’s strip it back to the bare bones again:
Beefy.Finance have minted 80,000 BIFI, with 90% of this supply to be distributed to users of the platform.
This token can be used in governance votes to decentralize the decision making process. This is a big thumbs up for those of us into the core principles of cryptocurrency decentralization.
The fees paid from liquidity pool vault users are distributed to holders of the BIFI token.
This reward is paid out by using the transaction fees gained from each vault to buy BIFI tokens from the open market every 4 hours. These BIFI tokens are then distributed to BIFI token holders who stake their BIFI in the BIFI maxi vault. That’s a lot of BIFI to digest.
In addition to all this, Beefy.Finance also runs staking pools to incentivize certain projects in the DeFi ecosystem. For example, you can stake $LINK to help improve its liquidity that ultimately helps the yield farming strategies present in the Beefy platform. Beefy.Finance have a lot more info on the topic here.
It’s a lot to take in, and a lot of mechanisms to grasp too. But when you look at it all piece by piece, you can see the potential that the platform has.
Dive Into the Depths of Liquidity Pools As Deep as You Wish
For the past year or so we’ve all been charting new horizons in the blockchain space. Just when we all think we have a grip on cryptocurrencies, fundraising, and blockchain solutions, something else inevitably pops up.
While Beefy.Finance’s current offering isn’t really breaking any moulds when it comes to yield optimization, it is taking advantage of all the benefits the Binance Smart Chain has to offer. If you’ve been following the Trust Wallet articles so far, then you can see how this is a pretty big benefit. It’s also incredibly easy to start having a play directly in the Trust Wallet DApp browser.
For anyone who is interested in these platforms, all I can really say is DYOR (do your own research). There’s always the risk of the dreaded [impermanent loss](https://academy.binance.com/en/articles/impermanent-loss-explained) when it comes to liquidity pools, so take that into account. Nevertheless, the tokenomics and intrinsic concept on show here are exciting. Beefy is still right in the early stages having only been launched late this September, so keep it on your radar and watch out for new developments.