Yield farming is one of the most profitable but risky activities in DeFi. This guide teaches you how to farm yields effectively.
What is Yield Farming?
Yield farming involves deploying crypto assets across DeFi protocols to earn maximum returns through trading fees, interest, and token rewards.
Common Yield Farming Strategies
Liquidity Provision
Provide liquidity to DEXs and earn trading fees plus incentive tokens.
Lending
Deposit assets into lending protocols to earn interest and governance tokens.
Staking LP Tokens
Stake liquidity provider tokens in farms for additional rewards.
Understanding APY vs APR
APR is simple interest. APY includes compound interest. A 100% APR compounds to higher APY if rewards are reinvested.
Risks to Consider
- Impermanent loss in volatile pairs
- Smart contract risk
- Token price depreciation
- Gas fees eating into profits
Best Practices
- Start with stablecoin pairs to minimize impermanent loss
- Use reputable, audited protocols
- Calculate real yields after fees and risks
- Diversify across protocols