Term
Yield farming
Yield farming is the practice of chasing high returns on cryptocurrency capital by moving it between DeFi protocols — providing liquidity, staking, borrowing, or leveraging positions to maximize the combined yield from fees, incentives, and interest.
Yield farming is an active strategy for extracting the best returns on crypto capital by moving it between DeFi protocols. Basic activities include providing liquidity to AMM pools (earning trading fees), staking governance tokens for protocol emissions, lending assets on Aave or Compound (earning interest), and often stacking these — for example, borrowing against staked collateral to fund another position.
The "APY" numbers advertised by yield farming strategies can be misleadingly large. They often include token emissions denominated in the protocol's own governance token, which can lose value dramatically if the protocol's incentive program ends or the market sours. Sustainable yield tends to come from real fee revenue, not token emissions.
The risks stacked into yield farming are non-trivial: smart-contract exploits, impermanent loss, oracle failures, cascade liquidations, sudden emission reductions, and the general macro risk of DeFi. Sophisticated farmers manage all of this actively; casual participants often underperform simple holding after accounting for gas fees and losses.
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