Yield farming
Yield farming is putting crypto into DeFi protocols to earn rewards such as fees, interest and bonus tokens, often moving funds between pools to chase the best rate.
How it works
A typical farm works like this: you deposit tokens into a liquidity pool or lending protocol, receive LP tokens (a receipt for your share) and stake them in a "farm" that pays out the protocol's reward token. Your return is fees plus interest plus those rewards.
High rates usually rest on newly issued tokens. When lots of farmers sell them, the reward price falls and the real yield ends up far below the advertised one. On top of that come impermanent loss, gas for every action and the risk of a smart contract hack.
Farming is not risk-free passive income. Protocols get exploited, teams disappear with funds (a rug pull), and a 500% APR usually means the risk is just as large.
You put $1,000 into a farm at 60% APR: 50 percentage points paid in the protocol's token and 10 from fees. In a month you earn tokens worth ~$42 at launch prices, but the token drops 40%, so they are worth ~$25. Add ~$8 in fees and minus $10 gas for claiming and exiting, and you net about $23 instead of the $50 you expected.
The main mistake is chasing the biggest APR without knowing where it comes from. If yield is paid in a new token that everyone dumps, the rate melts fast. Check what the yield is made of, whether the code is audited, how long the protocol has been running, and never put in more than you can afford to lose.
Questions and answers
What is yield farming in simple terms?
You lend your tokens to DeFi protocols and get interest and bonus tokens in return. It is like a deposit, but with much higher risk.
Where does the high yield come from?
From trader fees, borrower interest and, most often, newly minted protocol tokens. Those often lose value, so the real yield falls.
What is the difference between yield farming and staking?
Staking locks coins to help run a network in exchange for rewards. Farming is broader: you supply liquidity or loans to protocols and collect various rewards.
Related terms
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Updated: 2026-10-19