Introduction

Welcome to this tutorial on exploring yield farming and lending protocols in DeFi (Decentralized Finance). In this guide, we will delve into the concept of yield farming, lending/borrowing protocols, and how they are used to earn returns on crypto investments.

By the end of the tutorial, you will:
- Understand what yield farming and lending protocols are.
- Know how to interact with these protocols.
- Understand the risks and opportunities associated with yield farming and lending protocols.

Prerequisites:
- Basic understanding of Ethereum blockchain and smart contracts.
- Familiarity with cryptocurrency wallets like MetaMask.
- Basic understanding of web3.js or ethers.js for interacting with Ethereum blockchain.

Step-by-Step Guide

Yield Farming

Yield farming, also known as liquidity mining, is a way to make more cryptocurrency with your cryptocurrency. It involves you lending your funds to others via smart contracts. In return, you earn fees in the form of crypto.

Example:

// Lending your DAI tokens on Compound
const compound = new web3.eth.Contract(compoundABI, compoundAddress);
const amountToLend = web3.utils.toWei('100', 'ether'); // lend 100 DAI

// Approve the Compound contract to spend your DAI
await dai.methods.approve(compoundAddress, amountToLend).send({ from: userAddress });

// Lend DAI
await compound.methods.supply(amountToLend).send({ from: userAddress });

Lending Protocols

Lending protocols are smart contracts that manage assets on the Ethereum blockchain. They allow users to lend their assets to others and earn interest or borrow assets and pay interest.

Example:

// Borrowing DAI tokens from Compound
const compound = new web3.eth.Contract(compoundABI, compoundAddress);
const amountToBorrow = web3.utils.toWei('50', 'ether'); // borrow 50 DAI

// Borrow DAI
await compound.methods.borrow(amountToBorrow).send({ from: userAddress });

Code Examples

Example 1: Supplying DAI to Compound

// Here's how you'd supply DAI to Compound
const compound = new web3.eth.Contract(compoundABI, compoundAddress);
const amountToLend = web3.utils.toWei('100', 'ether'); // lend 100 DAI

// Approve the Compound contract to spend your DAI
await dai.methods.approve(compoundAddress, amountToLend).send({ from: userAddress });

// Lend DAI
await compound.methods.supply(amountToLend).send({ from: userAddress });

Example 2: Borrowing DAI from Compound

// Here's how you'd borrow DAI from Compound
const compound = new web3.eth.Contract(compoundABI, compoundAddress);
const amountToBorrow = web3.utils.toWei('50', 'ether'); // borrow 50 DAI

// Borrow DAI
await compound.methods.borrow(amountToBorrow).send({ from: userAddress });

Summary

In this tutorial, we've learned about yield farming and lending protocols, and how they can be used to earn returns on your crypto investments. We've also looked at how you can interact with these protocols using web3.js or ethers.js.

For further learning, explore other DeFi protocols like Uniswap, MakerDAO, Aave, and more. Make sure to understand the risks associated with yield farming and lending in DeFi.

Practice Exercises

Exercise 1: Write a function to allow a user to supply ETH to Compound.

Exercise 2: Write a function to allow a user to borrow DAI from Compound.

Exercise 3: Write a function to allow a user to repay their DAI loan on Compound.

Exercise 4: Write a function to allow a user to withdraw their supplied ETH from Compound.

Remember, practice is key to becoming proficient with these protocols. Happy coding!