Organic farming

Yield farming in DeFi provides liquidity to earn interest and token rewards

Yield farming is a financial strategy in the decentralized finance (DeFi) sector that involves providing liquidity to earn interest and token rewards. Participants lend their cryptocurrency assets to liquidity pools, which are collections of different crypto assets. In return, they receive rewards in the form of additional tokens or interest payments.

Example

Alice lends her Ethereum (ETH) to a DeFi platform's liquidity pool. In return, she receives a share of the pool's rewards, which may include additional ETH or other DeFi tokens.

Yield farming allows investors to potentially earn passive income by participating in the liquidity provision of DeFi platforms.

Related concepts

DeFi (decentralized finance) does

DeFi replicates financial services like lending, borrowing, and trading without traditional intermediaries

Yield curve

Yield curves show interest rates across different maturities

Liquidity trap

Interest rates near zero lower bound

Deflation

Deflation increases the real value of money

Bid–ask spread

Bid-ask spread measures transaction costs and liquidity

Risk parity

Risk parity allocates based on risk contribution, not capital allocation

Educational content, not financial advice.

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