Yield Farming
Chasing the highest returns by moving crypto between DeFi protocols to earn trading fees and bonus token rewards.
Yield farming means putting idle crypto to work across DeFi for the best possible return. A farmer might supply a liquidity pool, stake the LP tokens for extra rewards, then loop the proceeds back in. Returns are quoted as APY and can look enormous.
Those headline rates rarely last. They are often paid in a protocol's own token, whose price can crater as rewards flood the market. Layered positions also stack risk, so one exploited contract or a depeg can wipe out the whole structure. The 2020 DeFi summer ran hot, then cooled fast.
Related terms
A pot of tokens locked in a smart contract that traders swap against, with prices set by a formula.
StakingLocking up tokens to help secure a proof-of-stake network and earn rewards, similar to interest on a deposit.
Total Value Locked (TVL)The total worth of crypto deposited in a protocol or across DeFi, used as a rough gauge of size and trust.
Impermanent LossThe gap between leaving tokens in a liquidity pool and simply holding them, caused when the pooled prices drift apart.