Introduction to Yield Farming
Yield farming takes crypto investing to the next level. It's how DeFi power users maximize returns.
What Is Yield Farming?
Yield farming means moving your crypto between DeFi protocols to earn the highest yields. You're essentially lending your capital to protocols in exchange for rewards.
The Main Strategies
1. Liquidity Providing
Deposit tokens into a liquidity pool to enable trading on DEXes:
- Earn trading fees (typically 0.3% per trade)
- Often earn bonus token rewards
- Risk: Impermanent loss
2. Lending
Deposit into lending protocols like Aave or Compound:
- Earn interest from borrowers
- Lower risk than LPing
- Can use deposits as collateral
3. LP Token Staking
Take your LP tokens from providing liquidity and stake them:
- Earn farm tokens on top of trading fees
- Higher yields, more complexity
Typical Yields
| Strategy | Risk | APY Range |
|---|---|---|
| Stablecoin lending | Low | 2-8% |
| Blue chip LPing | Medium | 5-15% |
| New farm tokens | High | 50-500%+ |
🌾 High APY = high risk. If it seems too good to be true, it probably is.
You have completed all lessons in this module!