Overview
Yield farming is the process of putting your crypto assets to work to generate the highest possible return. Farmers move their capital between different DeFi protocols to chase the best 'yields' (interest rates or token rewards).
How it Works
- Lending: Depositing assets into protocols like Aave to earn interest.
- Liquidity Providing: Depositing assets into DEXs to earn trading fees.
- Reward Tokens: Many protocols give out their native governance tokens as an extra incentive to users.
Risks
Yield farming is high-risk due to smart contract vulnerabilities, liquidation risk, and extreme price volatility.