Welcome to part two of our series on using decentralized exchanges (DEXs)! In part one, we explored how to trade on DEXs, highlighting the steps involved in executing trades on these types of exchanges, from setting up your wallet to receiving your tokens.
In this part, we will be discussing another crucial aspect of DEXs: farming and pooling.
Decentralized finance (DeFi) has experienced tremendous growth in the past few years, and DEXs are at the heart of this movement. Unlike traditional centralized exchanges, DEXs allow users to trade cryptocurrencies without intermediaries, and they are built on blockchain technology, providing transparent and secure transactions. This has made them an attractive alternative for traders and investors prioritizing privacy, transparency, and control over their assets.
In addition to trading, DEXs offer other opportunities to earn passive income. This is where farming and pooling come in. Farming involves staking cryptocurrencies to earn rewards, while pooling involves combining funds with other users to increase liquidity and earn a share of the trading fees.
However, we will go through these processes using one of the world’s leading automated market maker (AMM) decentralized exchanges (DEXs), MelegaSwap. This easy-to-use DEX is built on the BNB chain network and allows users to trade, farm, and earn passive income on their crypto holdings.
HOW TO FARM ON DECENTRALIZED EXCHANGES (DEXS)
Farming is a process of staking cryptocurrency tokens in a liquidity pool to earn rewards. Liquidity pools are pools of tokens locked in smart contracts that facilitate trades on DEXs. When users provide liquidity to a pool, they are rewarded with a portion of the trading fees generated by the pool.
When farming on decentralized exchanges (DEXs), the rewards–usually paid in the form of tokens–and the Annual Percentage Rate (APR) is determined by several factors, including the liquidity pool's popularity, trading volume, and the number of tokens staked.
On MelegaSwap, for instance, some farms offer less than 10% APR, while some offer as high as 360%, calculated based on the above-stated factors.
To farm on DEXs, you need to follow these steps:
● Step 1: Choose a DEX that offers farming services like MelegaSwap
● Step 2: Connect your wallet
● Step 3: Choose the pool to farm
● Step 4: Add liquidity to the pool
● Step 5: Stake your liquidity pool tokens
Choose a DEX that offers farming services
There are several DEXs that offer farming services, including Uniswap, MelegaSwap, SushiSwap, and PancakeSwap, among others. But for the purpose of this article, we will be using MelegaSwap due to its ease of use.
Connect your wallet
Just like trading, farming requires connecting your wallet to the DEX. All you have to do is to head to your wallet’s browser and enter “www.melega.finance.” This allows you to access all the DEX’s services, stake your funds, and interact with smart contracts.
Choose the pool to farm
MelegaSwap DEX has multiple liquidity pools, each with its own token pair. Choose the pool that you want to farm based on the rewards offered and the token pair's potential.
Add liquidity to the pool
To farm, you need to provide liquidity to the pool by depositing an equal value of both tokens in the pair. In exchange, you receive liquidity pool tokens that represent your share of the pool. Let’s say you want to farm the “BEAR token” on the list. That means you would need to exchange your BNB coins for BEAR, first of all.
Once you have acquired the token, you may contribute liquidity and Binance Coin (BNB) to participate in the BEAR-BNB LP. Choose your preferred amount and click on "supply." Proceed to the farm page and locate BEAR, then enable and authorize it in your wallet.
Stake your liquidity pool tokens
After depositing liquidity, you need to stake your liquidity pool tokens to start earning rewards. The rewards are automatically added to your wallet. This is how you can generate passive income, which you can withdraw whenever you reach a satisfactory amount.
HOW TO POOL ON DEXS
Pooling involves combining funds with other users to increase liquidity and earn a share of the trading fees. Pools are essential for DEXs because they enable traders to execute trades without affecting the price significantly. As a pool provider, you earn a share of the trading fees proportional to your contribution to the pool.
To pool on DEXs, you need to follow these steps:
● Step 1: Choose a DEX that offers pooling services and connect your wallet
● Step 2: Choose the pool to join
● Step 3: Deposit funds to the pool
● Step 4: Start to earn trading fees!
Choose a DEX that offers pooling services and connect your wallet
Most DEXs, including MelegaSwap and PancakeSwap, offer pooling services, and the steps involved are similar. Meanwhile, like farming, pooling requires connecting your wallet to the DEX.
Choose the pool to join.
Each DEX has multiple pools, each with different rewards and trading pairs. Choose the pool that suits your trading needs and has the potential for high returns. For example, you can choose from the list of available tokens to earn more income on MelegaSwap.
Deposit funds to the pool.
To join a pool, you need to deposit funds in the pool. The funds are added to the liquidity pool, and you receive pool tokens representing your share of the pool.
Earn trading fees
As a pool provider on MelegaSwap, you earn a share of the trading fees
Closing thoughts
Arguably, farming and pooling on decentralized exchanges (DEXs) is a promising way to earn passive income in the world of cryptocurrency. By participating in liquidity pools and yield farming, investors can not only generate returns but also contribute to the growth and decentralization of the blockchain ecosystem. While it can be a complex process, DEXs offer users a more secure and transparent way to trade and invest in cryptocurrencies.
As the popularity of DEXs continues to grow, it is important for investors to stay informed and up-to-date on the latest developments in this exciting and rapidly evolving space.
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Risk warning: Cryptocurrency investment or trading is subject to high market risk. Hence, you might lose your money in the process. Please do adequate research and plan your investments cautiously. We at MelegaSwap will always make the best efforts to list high-quality and potential coins, but we will not be responsible for your losses in any way.