Harvest Finance is an asset management protocol that allows yield farmers to generate higher profits. It accomplishes this by using multiple profitable strategies for vaults where users deposit their cryptocurrencies.
With the introduction of decentralized finance, yield farming activities also skyrocketed. Not just that yield farming became extremely lucrative. However, DeFi users on Ethereum needed to complete complex operations to achieve promised annual yield. Another big problem was increasing gas costs for operations for yield farming. These problems were dire for yield farming users. Therefore, developers started using ways of solving this problem. Harvest Finance was among the first to solve the gas and complex operation problem for yield farmers. Let’s dive into it to understand how it works and what it really is!
What is Harvest Finance?
Harvest Finance is basically an asset management platform that allows users to maximise their yields for assets that are deposited in harvest vaults. In other words, it is a profit-making machine that can be used to generate excess returns. The platform executes multiple yield farming strategies to boost the profits for its users.
The platform was launched in September 2020 by an anonymous core development team. Around the same time, the total value locked on the platform reached well over $1bn within one month. The anonymous team takes care of the implementation of strategies to increase profits. Not just that, they also control and create new vaults themselves.
How does Harvest Finance work?
Let’s move into something that we all want to know. How does Harvest Finance really work? At its core, it is a yield aggregator. Basically, it allows users to pool deposits into vaults thus allowing them to reduce the gas costs. This in turn increases the profits yields farmers make. You can deposit any cryptocurrency in these vaults. While depositing, users get fToken. These tokens represent the users’ share of the vault. These tokens are generally ERC-20 tokens and can be used to generate FARM tokens.
Different vaults have different strategies that determine how the deposits will be used in order to generate better returns. Moreover, once the strategies are presented for each vault, users also have the liberty to withdraw. This is provided under a timelock mechanism to allow for users that do not agree with the strategy.
The FARM Token
The native token of Harvest Finance is called the FARM token. It is an ERC-20 token that is used for governance purposes. The token is also used to receive cash flows within the platform. Users can stake their FARM tokens to earn more FARM tokens are rewards. Moreover, staking is done in a profit-sharing pool only. The reward FARM tokens are not actually printed but bought off the market. This is a unique feature of the platform. This technique also creates a steady buying pressure on the FARM tokens. New FARM tokens are minted every week with 70% allocation to liquidity providers, 20% to the development team and 10% to the treasury.