Definition
Yield farming involves deploying crypto assets across multiple DeFi protocols to maximize total returns from trading fees, token rewards, and interest. Strategies range from simple (staking in a single protocol) to complex (leveraged yield farming across multiple platforms). Yields can range from 2-3% on stablecoins to 100%+ on newer protocols, with higher yields reflecting higher risks.
lightbulb Example
A yield farmer deposits USDC into a lending protocol earning 5%, borrows ETH at 3%, provides ETH-USDC liquidity earning 15% in fees + 25% in governance token rewards. Total yield: ~42%, but with significant smart contract and liquidation risk.
Extremely high DeFi yields (50%+) are usually unsustainable and often indicate elevated risk. Many high-yield farms have suffered exploits or rug pulls.
verified_user Key Points
- Maximizes returns across multiple DeFi protocols
- Higher yields = higher risks
- Strategies: lending, LP provision, token farming
- Smart contract risk is the primary danger