Yield Farming
The practice of moving crypto assets across DeFi protocols to maximise returns from fees, interest, and token rewards.
Yield farming (also called liquidity mining when focused on earning governance tokens) involves depositing crypto assets into DeFi protocols to earn returns. At its simplest, this means supplying tokens to a lending protocol for interest or providing liquidity to a DEX for fee income.
More complex strategies chain multiple steps: a farmer might deposit ETH into Aave to earn aETH, deposit aETH as collateral to borrow USDC, then deploy that USDC into a high-yield pool. Such leverage amplifies both gains and liquidation risk.
During the 'DeFi summer' of 2020, yield farming APYs in the thousands of percent attracted enormous capital flows. Sustainable yields are much lower today — typically 2–20% for reputable blue-chip protocols — reflecting the maturation of the sector.