Home > Glossary > Yield farming

Yield Farming

Yield farming is a decentralised finance (DeFi) practice where cryptocurrency holders lend or stake their assets in exchange for interest or rewards. This process allows participants to earn passive income on their holdings by providing liquidity to DeFi platforms, such as decentralized exchanges or lending protocols.In return, users receive rewards in the form of additional cryptocurrency tokens or interest payments. Yield farming is popular in DeFi ecosystems because it offers potentially high returns, though it carries significant risk due to volatility and smart contract vulnerabilities.

Example

A crypto investor stakes their Ethereum in a decentralized lending platform and earns interest or governance tokens as a reward for providing liquidity.

Key points

• A DeFi practice where users lend or stake cryptocurrency to earn interest or rewards.

• Provides liquidity to decentralized platforms in exchange for cryptocurrency rewards.

• Popular in decentralized finance for its potential high returns but carries risks due to volatility and security concerns.

Quick Answers to Curious Questions

Users earn interest or rewards by staking or lending their cryptocurrency to DeFi platforms, which use the funds to facilitate transactions or loans.

Yield farming carries risks such as market volatility, liquidity risks, and the potential for smart contract vulnerabilities or hacking.

It offers the potential for high returns on cryptocurrency holdings by allowing users to earn passive income through staking or lending on DeFi platforms.