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Glossary

Yield Farming

November 21, 2023 - Around 1 mins mins to read

Understanding Yield Farming

Yield farming refers to a range of strategies that aim to maximize returns from investments in cryptocurrencies.

One approach to achieve this is by earning interest through lending digital assets to others. Another method involves locking up the crypto in a liquidity pool. Additionally, some decentralized finance protocols reward participants with governance tokens, which have become highly speculative assets.

Yield farmers utilize the annual percentage yield (APY) metric to calculate their expected returns, as it considers compounding. To optimize their profits, investors often switch between different DeFi protocols.

However, yield farming carries certain risks. DeFi protocols are vulnerable to smart contract bugs, which can expose funds to vulnerabilities. Therefore, it is crucial to conduct thorough due diligence before participating in this trend.

This practice gained significant popularity in the summer of 2020, when the total value locked in DeFi protocols experienced a surge. Some of the most well-known projects involved in yield farming during that time were Compound, Aave, Balancer, and Curve.

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Coincu

Glossary

Yield Farming

Understanding Yield Farming

Yield farming refers to a range of strategies that aim to maximize returns from investments in cryptocurrencies.

One approach to achieve this is by earning interest through lending digital assets to others. Another method involves locking up the crypto in a liquidity pool. Additionally, some decentralized finance protocols reward participants with governance tokens, which have become highly speculative assets.

Yield farmers utilize the annual percentage yield (APY) metric to calculate their expected returns, as it considers compounding. To optimize their profits, investors often switch between different DeFi protocols.

However, yield farming carries certain risks. DeFi protocols are vulnerable to smart contract bugs, which can expose funds to vulnerabilities. Therefore, it is crucial to conduct thorough due diligence before participating in this trend.

This practice gained significant popularity in the summer of 2020, when the total value locked in DeFi protocols experienced a surge. Some of the most well-known projects involved in yield farming during that time were Compound, Aave, Balancer, and Curve.

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