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November 09, 2022

What Is Harvest Finance and How To Use It 

Harvest is traded on more than 30 trusted platforms including Uniswap, Polygon, Compound, Lido, Sushiswap, and Curve — all while giving crypto investors the opportunity to compound interest and earn rewards hands-off while Harvest Finance does the hard work behind the scenes.

So, let’s talk Harvest Finance — what it is, what to know about it, and how you can use it. 

What Is Harvest Finance?

Harvest Finance (FARM) is an automated Ethereum-based “Defi” (decentralized finance) farming protocol that allows users to generate extra income (i.e., “yield”) and earn interest on their existing crypto investments.

It does this by aggregating digital assets into decentralized lending pools that in turn provide liquidity to other crypto borrowers looking for loans.

Since its founding on September 1, 2020, Harvest has become one of crypto’s trending aggregators automating the process of “yield farming” which locks up crypto assets into smart-contract-basedliquidity pools to generate rewards. 

This puts crypto investors’ otherwise idle assets to work through auto-compounding, auto-harvested rewards, proprietary rewards, as well as unique DAO (“decentralized autonomous organization”) token rewards.

The History of Harvest Finance

Harvest Finance officially launched its platform and the FARM token in September 2020 anonymously with zero circulating supply and without any venture capital funding or pre-mining. Within days it quickly became one of the most talked about and top-rated DeFiblockchain platforms on Ethereum.

Since its launch Harvest has continued to expand its user base and grown internally as well including integrating with Yearn Finance in December 2020, another leading DeFi protocol, which allows users to swap assets and rewards.

How Does Harvest Finance Work?

Crypto investors both new and experienced frequently feel overwhelmed by the volatility of the markets, the speed at which the DeFi landscape is evolving, and the constantly expanding array of coins, tokens, and other digital assets to bet on.

Harvest Finance was founded to create a lower-risk middle ground for first-time crypto investors to get into the game while offering experienced crypto investors a way to diversify their portfolios in order to expand their digital wealth. 

From a practical standpoint, the foundation of Harvest Finance is its smart contract “vaults,” which store digital assets that generate yields for users who deposit ERC20 tokens into them. 

The earnings from each vault (of which there are currently more than 30) are then automatically redistributed to Harvest users based on their share of the pool, without any additional work needed on the part of the user. 

This makes for a passive crypto income stream either through accrued interest or rewards depending on the pool.

What Is the FARM Token?

Harvest’s Ethereum-based FARM token powers Harvest’s protocol, moving investors’ otherwise idle crypto funds around the DeFi-verse in real-time through staking and farming in order to generate yields and hedge against market downturns.

Harvest’s FARM token is also a governance token rather than a utility or commodity token, which means it confers on users the rights to vote on the direction of the existing Harvest protocol as well as on proposals regarding its future direction. 

FARM tokens are also proportional, so the more FARM tokens a user stakes, the greater say they have on the future of their investment and the Harvest protocol.

From an interest and lending standpoint, Harvest’s FARM tokens can also be leveraged as collateral for lenders to borrow from in addition to earning interest.

Functions of the FARM Token

Harvest Finance’s FARM token offers crypto investors a low-risk, “wide net” way to earn yields and maximize returns on their existing crypto assets.

It does this in three ways:

  1. Through the Harvest protocol

    staking pool which allows users to “stake” their crypto assets and generate interest from the pool’s underlying investments

  2. By serving as a lending platform for other users and earn interest on those loans, and

  3. Functioning as a trading platform for ERC20 tokens and crypto as well as traditional fiat currencies

How To Use Harvest Finance

Harvest Finance is an exciting way to get involved (or more involved) in the crypto scene. That said, having some knowledge of the Ethereum blockchain and smart contracts will be massively helpful before diving into Harvest. 

Wallets

Let’s start with wallets. To use any cryptocurrency, you need to have a crypto wallet first — FARM tokens are no different. With a crypto wallet, users can send and receive Ethereum and other cryptocurrencies from a unique and transparent digital address. Harvest reports that its users primarily use a MetaMask browser extension for this, though WalletConnect is another option.

GAS Prices

Next, GAS prices matter — yes, even in the crypto world. Ethereum contracts must be mined before they are validated and incorporated into the blockchain. However, smart contracts each have different levels of computational complexity (GAS), so most users deal with this by setting a GAS price. 

That’s what GAS prices are in crypto — a small tip for the miner who verified the transaction. Just as gasoline prices are necessary to fuel your car's engine, GAS prices are necessary to fuel the engine of the Ethereum blockchain.

GAS prices, essentially, are attached to transactions, and miners follow higher GAS prices to decide where to focus their mining efforts. Typically, the higher the GAS price, the faster the transaction will get mined, though exact time and price estimates fluctuate.

Harvest offers extraordinarily complex smart contracts relative to other platforms. As a result, Harvest may seem to have distinctively high GAS prices for deposits and withdrawals.

Another thing to remember is that, especially if you’re just getting started, it’s generally not worth it to fiddle with the automatically generated GAS costs. Most wallets do the calculation for you. If you make your own changes, you may end up paying transaction fees only to see your transaction fail.

Getting Connected

From there, connecting is relatively straightforward. You’ll need to set up a crypto wallet or use an existing one and connect it to your Harvest account. This connection, again, is most commonly handled either through a MetaMask extension or WalletConnect. 

Once you’re connected, Harvest should automatically detect your assets. At this point, you should be good to go. 

However, as you begin transactions, keep the fluctuating GAS price in mind. 

What Are the Advantages of Harvest Finance?

Earning Interest

No matter which side of the finance system you’re invested in — traditional or digital — everyone wants their money to work for them, not the other way around. That’s why earning passive interest on your existing crypto assets is Harvest’s biggest selling point.

Harvest Finance offers its users the ability to earn regular, accruing interest on their existing crypto holdings by lending them out to other investors through Harvest’s digital “pool.” 

Harvest’s interest rates, while adjusted dynamically based on a real-time assessment of supply and demand, ensure a competitive return relative to other more traditional investment vehicles.

Access to Liquidity

Harvest Finance provides access to liquidity for its users through its decentralized exchange (DEX). In other words, you can easily convert your cryptocurrency into other assets, such as fiat currency or stablecoins, without going through a centralized exchange.

Low Fees

Harvest Finance charges low fees for its services. For example, the protocol’s transaction fee is only 0.03%. This is significantly lower than the fees charged by centralized exchanges, which can be as high as 3%.

What Are the Risks of Harvest Finance?

Lack of Customer Support

Whenever it comes to investing money, everyone wants someone to talk to when it looks like the market’s going south, or at minimum, if they just have a simple question about how their investments are being deployed or how to protect themselves from the next volatility swing.

Unfortunately, Harvest Finance doesn’t have a customer support team either on the phone or online. So, if you’re having problems with the protocol, wondering what’s happening to your money, or just have technical questions, the Harvest community is the only place that you can go for help.

Whether you’re a novice crypto investor or have been in the game for years, being able to reach someone associated with the fate of your investment not only gives peace of mind for some, but is a dealbreaker for others when it comes to where they put their money.

Security 

Unless you still like to save your money by hiding stacks of U.S. dollars under your mattress or cutting holes into your walls, every digital currency and DeFi protocol runs the risk of being hacked. 

And even though Harvest is built on the Ethereumblockchain — which is one of the oldest, safest, and most proven — it’s not fail-safe. 

All blockchain protocols are vulnerable to hackers, which means your digital assets are as well.

Additionally, “smart contracts” come with their own vulnerabilities as well, especially when third parties trusted or not haven't audited the protocol.

Volatile Interest Rates

Like all interest rates on any investment digital or otherwise (Federal Reserve mortgage rate hikes anyone?), Harvest’s interest rates are prone to wild swings and not locked in long-term like a 30-year mortgage or the yield on a 10-year treasury bond.

That means that one day you could be earning interest on your Harvest investment that will make you feel like an overnight millionaire. The next day, however, you could be making nothing at all or losing what you’d just earned the day before just as fast.

The Future of Harvest Finance

As a platform and aggregator, most crypto exchanges and analysts are bullish on Harvest Finance’s plans for growth and expanding its user base. And its ever-expanding user base and increasing market cap signal that it’s becoming a major up-and-coming player in the DeFi space.

Harvest Finance is capitalizing on the desire from crypto investors to diversify their portfolios beyond just Bitcoin and NFTs into managed portfolios and diversified investments.

The company’s first mover position as an aggregate “yield farmer” in the DeFi space could also be a game changer.

Looking to learn more about investing in crypto? Explore Ember’s blog here.

Sources:

FARM token | Harvest Finance

How to use Harvest | Harvest Finance

Gas (Ethereum): How Gas Fees Work on the Ethereum Blockchain | Investopedia

What is a crypto wallet? | Coinbase

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