Yield farming

How it is used

It became popular in the 'DeFi summer' of 2020. Farmers compare the APY (annual percentage yield) of different pools, but very high APYs are often temporary and paid in tokens whose price can fall sharply. Risks include contract bugs, exploits, impermanent loss and rug pulls.

Example sentences

1. Yield farming rewards dropped sharply after the protocol cut its token emissions.

2. Before we try any yield farming, our risk team checks whether the contracts have been audited.

Common collocations

• yield farming rewards
• yield farming strategy
• liquidity mining
• farm rewards

Related terms

• liquidity poolA smart contract that holds two or more tokens which traders can swap against. Users who deposit tokens into it earn a share of the trading fees.
• DeFiShort for decentralized finance: financial services such as lending, borrowing and trading that run on smart contracts instead of through banks or brokers. Users keep control of their own wallets.
• stakingLocking up coins in a proof-of-stake network to help secure it, either by running a validator or by delegating to one, in return for rewards. Staked coins may not be available to sell straight away.
• exploitAn attack that takes advantage of a bug or design weakness, often in a smart contract or bridge, to steal funds or make a system behave in a way its creators did not intend.
• rug pullA scam in which the creators of a crypto project suddenly take investors' money and disappear, for example by removing all the liquidity from a token's trading pool.

More terms: DeFi & NFTs

• NFT
• decentralized exchange
• collateral
• automated market maker