Orcfax Yield Farming 101 — A Starters Guide

What is Yield Farming?

Yield farming, also called liquidity mining, involves lending or staking cryptocurrencies in DeFi platforms to earn extra tokens. Instead of letting their crypto sit idle, users can deposit it in DeFi platforms like WingRiders, or Minswap. In return, they get (native) tokens or other fees as rewards. Rewards vary based on factors like asset type, amount, duration, and platform demand. Before we dive into Yield Farming, let’s start by delving deeper into the concept of a liquidity pool.

How does a Liquidity Pool work?

A Liquidity Pool is a fundamental component of decentralized exchanges. It plays a crucial role in providing liquidity to the decentralized trading ecosystem. Here’s how it works step by step:

1. Adding Liquidity
A user decides to contribute to a liquidity pool by adding an equal value of two different assets, in this case, FACT and ADA. These assets are paired together in the pool, and their values are determined by the current market rates.

2. LP Token Generation
In exchange for providing liquidity to the pool, the user receives LP (Liquidity Provider) tokens. These LP tokens represent the user’s share of the total liquidity in the pool. The number of LP tokens received is proportional to the value of assets added to the pool.

3. Trading on the DEX
Once the user has added liquidity, other users start trading on the DEX using the FACT/ADA trading pair. This is the core function of the decentralized exchange, allowing users to swap one token for another without the need for a centralized intermediary. The users pay a small fee to the Liquidity Pool per trade.

4. Fees Distribution
When trades occur in the FACT/ADA pair, trading fees are generated. These fees are typically a small percentage of the transaction amount and are paid by the traders. People who provide liquidity to the pool receive a fee in proportion to their share of the pool.

(5. Done Liquidity Mining?)
If you wish to exit the liquidity pool, the process involves withdrawing your tokens (ADA and FACT) by redeeming your LP tokens. Your tokens will be returned to you based on the LP rate at that time.

The key idea behind liquidity pools is to ensure that there is enough liquidity available for traders, which helps to reduce price slippage (the difference between the expected and actual price of an asset when a trade is executed). Liquidity providers are incentivized to contribute assets to these pools because they earn a portion of the trading fees generated by the platform.

How does Yield Farming work?

Yield farming offers additional rewards to liquidity providers when they stake their LP tokens within a smart contract. These yield rewards serve as an added incentive for the community to contribute liquidity to a pool, separate from the trading fees earned through the liquidity pool. In order to Yield Farm, we have to add one extra step to the previous process. Here’s how it works step by step:

1. Adding Liquidity
A user decides to contribute to a liquidity pool by adding an equal value of two different assets, in this case, FACT and ADA. These assets are paired together in the pool, and their values are determined by the current market rates.

3. Stake LP tokens in a Farm
To engage in the Yield Farming program and unlock its rewards, you’ll need to deposit your LP tokens into a smart contract, often referred to as a “farm.”

4. Earn APR
When users stake their LP tokens in the Yield Farm, they begin earning rewards in the form of Annual Percentage Rate (APR). APR, also known as the Annual Percentage Rate, represents the annualized interest rate. It provides a clearer understanding of the overall yield and potential earnings from staking LP tokens in the Yield Farm.

(5. Done Yield Farming?)
Withdraw your staked LP tokens and accrued rewards from the farm.

Still confused? Check Paul's explainer!

Orcfax Yield Farming Rewards

Orcfax has allocated 20,000,000 FACT for Yield Farming Rewards. We expect this allocation of FACT tokens to be enough to provide interesting Yield Farming APR for multiple months. Although we can’t say for sure, since APRs depend on the price of FACT and the amount of liquidity added, we will try to provide a 30%+ APR for all the liquidity providers. You can now start adding your liquidity to WingRiders or Minswap, stake your LP tokens, and start earning FACT tokens!

How to Yield Farm with WingRiders

Go to https://app.wingriders.com/pools and find the ADA / FACT pool

2. Click “ADD LIQUIDITY” and add an equal value of ADA and FACT
Note: the button “ADD LIQUIDITY” only appears when you hold both ADA and FACT in the same wallet

3. Click on “ADD LIQUIDITY” and follow the steps in your wallet interface

4. After confirmation of your transaction you receive LP tokens
Note: all the steps above are described in the section “How does a Liquidity Pool work?”

5. Now you received your LP tokens, you need to stake them in WingRiders farm. Go to https://app.wingriders.com/farming/all-farms

6. Search for the ADA / FACT farm and click on “DEPOSIT”.

7. Deposit your LP tokens to the farm and follow the steps in your wallet interface

8. Congrats! You’ve deposited your LP tokens to the farm. You can manage your LP tokens on WingRiders portfolio page

How to Yield Farm with Minswap

Go to https://app.minswap.org/liquidity
Add an equal value of ADA and FACT, click “Add Liquidity” and follow the steps in your wallet interface
Note: the button “Add Liquidity” only appears when you hold both ADA and FACT in the same wallet

3. Go to https://app.minswap.org/farm and search for the ADA-FACT farm
Note: the pools opens September 23rd, 9AM UTC!

4. Click on “Stake” and add your LP tokens to the farm by following the steps in your wallet interface

5. Congrats! You’ve deposited your LP tokens to the farm. You can manage your LP tokens on Minswaps portfolio page

Risks of providing liquidity

It’s important to note that providing liquidity also comes with certain risks. The value of assets in the pool can change due to market fluctuations, and liquidity providers may face impermanent loss, which is a temporary loss in the value of their assets compared to simply holding them. It’s essential for liquidity providers to carefully consider these risks before participating in a liquidity pool. Read more about the risks of liquidity provided here.