đź“ť Definition:
Yield farming is a way to earn rewards by lending or staking your cryptocurrency in decentralized finance (DeFi) platforms.
It’s like putting your money to work in a high-interest savings account but in the world of crypto.
🔑 Key Features:
- High Rewards: Potential to earn high returns on your crypto.
- Lending Crypto: Lend your crypto to DeFi platforms in exchange for rewards.
- Risk: Involves risks like price changes and technical bugs.
- Automation: Often uses automated protocols running with smart contracts to maximize earnings.
⚙️ How It Works:
- Choose a Platform: Select a DeFi platform that offers yield farming opportunities (Uniswap, Aave, Compound...).
- Deposit Crypto: Deposit your cryptocurrency into the platform’s pool.
- Earn Rewards: Earn rewards as interest, tokens, or other crypto assets.
- Harvest Yield: Withdraw your earnings and reinvest or cash out.
đź’ˇ Applications:
- Staking: Lock up your crypto to earn rewards.
- Lending: Lend your crypto to others for interest.
- Liquidity Pools: Add your crypto to pools that help trading between different cryptocurrencies and earn fees with each transaction.
- Governance Tokens: Earn tokens that give you a say in the platform’s decisions.
🔍 Example:
Imagine you have some extra apples and you decide to lend them to a farmer.
The farmer uses your apples and, in return, gives you some of the apples he grows.
In the crypto world, you deposit your crypto into a DeFi platform and earn more crypto as a reward.