Introduction

As the sun rises on a new day in the world of Decentralized Finance (DeFi), we are excited to announce that Velar farming has officially gone live today! The process involves users providing liquidity to a decentralized protocol, and in return, they receive rewards, usually in the form of tokens. In this blog post, we will delve into the mechanics of the newly launched Velar farming system.

Within the vast landscape of Decentralized Finance (DeFi), farming has emerged as a powerful way to generate yield from your crypto assets. Farming, also known as yield farming or liquidity mining, involves users providing liquidity to a decentralized protocol in return for rewards, often in the form of tokens.

Farming mechanisms and rules can vary widely among different protocols. In this blog, we will delve into the farming system of the Velar protocol, and understand how the rewards for liquidity providers work.

Staking Liquidity Pool Tokens

A crucial aspect of farming is staking liquidity pool (LP) tokens. These tokens are essentially digital receipts that you receive when you add liquidity to a decentralized exchange (DEX). In our case, users will receive LP tokens as a marker of their contribution to the pool.

To stake these LP tokens, users deposit them into a smart contract designed to reward stakers with Velar tokens. The process is simple and straightforward, making it an attractive option for users seeking passive income. Importantly, the more and longer you stake, the higher the proportion of the rewards you receive.

Unstaking Liquidity Pool Tokens

The beauty of farming in DeFi lies in its permissionless nature, which means there are no restrictions on when you can unstake your LP tokens. You retain full ownership of your tokens and can unstake them anytime you wish. This feature provides significant flexibility, ensuring you are not locked in and can adjust your positions based on market dynamics.

However, it's crucial to remember that unstaking your LP tokens early may have implications on your rewards, which brings us to the next point.

Understanding Rewards and Epochs

Rewards in our farming system are distributed in epochs, a set period during which rewards are accrued and distributed. To qualify for rewards, a user needs to stake their LP tokens for at least one full epoch. Moreover, the LP tokens need to be staked before the start of an epoch to receive rewards for that epoch.

For example, if a user stakes their LP tokens in epoch 0, they must remain staked until the end of epoch 1 to receive rewards for epoch 1. If a user unstakes before the end of epoch 1, they won't receive any rewards. This structure incentivizes long-term participation and stability within the pool.

Accrual and Distribution of Rewards

Upon the conclusion of each epoch, the accrued rewards are ready for distribution. Most epoch lasts 500 blocks (subject to change) and has a predetermined reward for distribution. The share of rewards a user receives is proportional to the size of their stake in comparison to the total stake in the pool.

Consequently, users who stake more LP tokens have a chance to earn more Velar tokens. This incentivizes larger contributions to the liquidity pool, contributing to the overall health and efficiency of the ecosystem.

Conclusion

Farming in DeFi can be a rewarding experience, both in terms of enhancing the protocol's performance and earning passive income.

However, understanding the rules of engagement, like staking, unstaking, and reward distribution, is vital for maximizing returns.

As always, do your due diligence and make informed decisions as you venture into the innovative world of DeFi farming.