What is Yield farming?

Yield farming crypto can generate passive returns on holdings using decentralized finance (DeFi) protocols — but participating in it is very rarely a passive endeavor. Yield farmers often execute complex strategies, moving crypto assets between platforms to maximize liquidity mining returns. More recently, leveraged DeFi yield farming protocols have begun to issue under-collateralized loans to liquidity providers and yield farmers. Through this mechanism, users borrow crypto assets to increase exposure to risk and reward.

The rapid growth of decentralized finance (DeFi) has been partially driven by interest in yield farming, also known as liquidity mining. Yield farming is the practice of maximizing returns on crypto holdings through a variety of DeFi liquidity mining methods. While it can be lucrative, it requires a thorough understanding of DeFi protocols to be successful. In most cases, yield farmers enact complicated and evolving strategies, frequently moving crypto assets between lending marketplaces to maximize returns.

Because of this, building a working knowledge of yield farming can be intimidating for newcomers. It’s important to be equipped with best practices before engaging in this new sector.