What is Yield Farming? A Beginner's Guide
Yield farming is the practice of staking or lending crypto assets in order to generate high returns or rewards in the form of additional cryptocurrency.
How it Works
- Lending: Users lend their crypto to a protocol (like Aave or Compound).
- Borrowing: Other users borrow this crypto and pay interest.
- Rewards: The protocol pays the lender interest + sometimes extra governance tokens.
Risks
- Smart Contract Risk: Bugs in the code can lead to hacks.
- Impermanent Loss: As discussed in our IL guide.
- Rug Pulls: Malicious developers stealing funds.
Calculate your potential APY with the Yield Farming Calculator.