// GLOSSARY -- DEFI

What is Yield Farming?

1 min read Updated

Yield farming is the practice of strategically deploying crypto assets across DeFi protocols to maximize returns — earning trading fees, lending interest, governance tokens, and other incentive rewards.

WHY IT MATTERS

Yield farming is DeFi's killer app: make your idle crypto work. Instead of holding tokens in a wallet, deposit them into lending protocols (earn interest), liquidity pools (earn fees), or staking contracts (earn rewards).

Advanced farming involves chaining strategies: deposit ETH as collateral, borrow stablecoins, LP the stablecoins, stake the LP tokens. Each step adds yield — and risk. Leverage amplifies both returns and losses.

The 'DeFi Summer' of 2020 saw astronomical yields (1000%+ APY) from governance token distributions. These returns were temporary — sustainable yields are much lower (5-20%) and reflect actual economic activity.

FREQUENTLY ASKED QUESTIONS

Is yield farming still profitable?
Yes, but with realistic expectations. Sustainable yields are 5-20% APY. Higher yields exist but carry proportional risk. The 1000% APY days of DeFi Summer are gone.
What are the risks?
Smart contract bugs, impermanent loss, liquidation (if leveraged), rug pulls, and token price decline erasing yield gains. Always evaluate risk-adjusted returns, not raw APY.
Can AI agents farm yield?
Yes — yield farming involves repetitive optimization tasks well-suited to agents. The challenge is ensuring agents don't chase unsustainable yields or fall for honeypot contracts.

FURTHER READING

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