THE BENIGNANCY OF DUAL FARMING.
How do Liquidity providers get rewards? Let’s talk about dual farming. Dual farming is a kind of staking benefit method whereby liquidity providers (LPs) gets rewarded for their liquidity in the form of two cryptocurrencies instead of just one. But before we proceed, let’s define what “Liquidity provider” mean. “Liquidity provider” is essentially synonymous with “market maker.” Their function is to facilitate trading in securities and other financial instruments by providing a pool of shares, (which they own), so that buyers and sellers can trade easily without having to locate and deal with other individual traders. However, In this case of dual farming, liquidity providers reap their benefit through several ways which I’m going to list below;
Liquidity Providers often get a portion of the trading fees the DEX collects from the pair in question. So these benefits are paid out at several daily intervals and auto compounded into the Liquidity Provider’s space. So they are often blessed in the 2 assets that are in the pool. And talking of DEX, a decentralized exchange which is a peer-to-peer (P2P) marketplace that connects cryptocurrency buyers and sellers. In contrast to centralized exchanges (CEXs), decentralized platforms are non-custodial, meaning a user remains in control of their private keys when transacting on a DEX platform. In the absence of a central authority, DEXs employ smart contracts that self-execute under set conditions and record each transaction to the blockchain. These trustless, secure transactions represent an accelerating segment of the digital asset market, and are pioneering new financial products. That’s by the way tho, so After depositing liquidity, LPs deposit their LP tokens to earn $QUICK & $MATIC
Now, What are the benefits of Dual Farming, as said earlier, Dual rewards can amplify liquidity provider yields by boosting pool APYs. (Annual percentage yield) which acts as a cryptocurrency savings account similar to an annual percentage rate (APR) account. … The annual percentage yield (APY) is a method of calculating the amount of money earned on a money market account over the course of a year. So Rewards received in two digital currencies can grant liquidity Providers increased asset diversification and potentially reduce volatility, that is, a measure of how much the price of an asset has moved up or down over time.
Moving forward, anything they say that has advantages also have disadvantage. The real turn off and set back when it comes to participating in any kind of liquidity provision, dual farming included — is the potential to experience impermanent loss. Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss. In this case, the loss means less dollar value at the time of withdrawal than at the time of deposit. Pools that contain assets that remain in a relatively small price range will be less exposed to impermanent loss. Stablecoins or different wrapped versions of a coin, for example, will stay in a relatively contained price range. In this case, there’s a smaller risk of impermanent loss for liquidity providers (LPs). So why do liquidity providers still provide liquidity if they’re exposed to potential losses? Well, impermanent loss can still be counteracted by trading fees. In fact, even pools on Uniswap that are quite exposed to impermanent loss can be profitable thanks to the trading fees. Let’s take an instance, let’s say Tyler provided liquidity for the MATIC-QUICK pool and QUICK increased rapidly against MATIC. Tyler would lose some QUICK and gain some MATIC to rebalance the liquidity he provided. If he removed his liquidity from the pool, then these losses are realized, but if he remained in and the ratio were to rebalance (in this case meaning MATIC gained on QUICK at the same pace QUICK gained on MATIC), then Tyler wouldn’t realize any losses, ie, the losses Tyler suffered were impermanent. However, All liquidity pairs are subject to the possibility of impermanent loss, but liquidity mining rewards (particularly dual farming rewards) reduce the risk of loss by offering high APYs.
Now let’s take a peep or Feedback from the Community of the benevolence of the platform. In the past month of executing the DF2 program, the team started planning the DF3 program as well While in talks with various prospective partners for our DF3 program, also keeping an eye on what the community really wanted. We also sent out some feelers to some of our community members to understand what they really felt about the ongoing program.
However, the idea was to see how the Dual Farming program was really helping them and whether it was achieving what we set out to achieve when we designed this program — i.e. increase the APY for our users in a sustainable manner.
positive reactions were received and Infact, the community is very upbeat about the fact that the program could not only bring them new and promising token assets but also increase their asset APY over an extended period of time.
The feedback also pointed out a very interesting insight. Notwithstanding the fact that Partner tokens hold huge long term value, it was felt that farming the native tokens will also bring more advantage to the overall program.