Quick answer
Yield farming is the practice of supplying assets to DeFi protocols to pursue fees, incentives, or other variable returns.
What is Yield farming?
Yield farming involves moving or depositing assets into one or more protocols in search of yield. The displayed rate can change with usage, token incentives, prices, emissions, and contract conditions.
The useful way to approach this term is to separate its definition from the assumptions people often attach to it. In crypto, the same word can appear in a protocol rule, a user interface, a market-data label, or a marketing claim. Check which layer the explanation is describing.
Why does yield farming matter?
A headline APY can hide smart-contract risk, impermanent loss, token dilution, liquidation, bridge risk, and withdrawal restrictions. The return should be evaluated alongside the risks and assumptions.
Concrete example
See it in a real situation
A liquidity pool offers trading fees plus a temporary token incentive. The combined displayed APY may fall when volume decreases or when the incentive emissions change.
Common misconceptions
What this term does not mean
- APY is not a guaranteed interest rate.
- A reward token can lose value even while the displayed token quantity increases.
Related terms
Sources and further reading
Definitions are written for education and checked against the sources below where relevant. A source can explain a protocol or rule without endorsing every product built around it.