Definition
Yield farming is a DeFi strategy where users provide cryptocurrency to protocols in exchange for rewards. These rewards may come in the form of interest, fees, or governance tokens. Yield farmers often move assets between platforms to maximize returns. While yield farming can generate income, it also carries risks including smart contract vulnerabilities and market volatility.
Simple Explanation
Yield farming involves earning rewards by providing cryptocurrency to DeFi platforms.
Example
A user deposits USDC into a DeFi protocol and earns rewards over time.
Why It Matters
Yield farming helps provide liquidity to DeFi ecosystems while rewarding participants.
Frequently Asked Questions
What is yield farming?
It is earning rewards by supplying assets to DeFi protocols.
Is yield farming risky?
Yes, risks include smart contract and market risks.
How are rewards paid?
Often through fees, interest, or tokens.