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What is Yield Farming

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Last updated 1 year ago

Yield farming in DeFi refers to rewarding liquidity providers with yield aggregators’ native tokens as compensation for supplying liquidity. It is called ‘Farming’ because it is similar to cultivating crops, where liquidity (seeds) is supplied, and coins (crops) are received in return.

Yield aggregators are platforms that maximize cryptocurrency returns by utilizing various financial services and protocols. Such platforms aim to generate returns by fully utilizing users’ cryptocurrencies and provide effective asset management features.

Yield Aggregators generate returns using various methods, and the most common examples include:

1. Liquidity provision: Users can deposit their assets in liquidity pools and earn fees from those pools. Typically, assets provide liquidity on DeFi platforms, which are required for loans or trades.

2. Trading fee distribution: Some yield aggregators collect users’ trading fees and distribute them. These fees are generated when users use the platforms.

Yield aggregators automate and optimize such services and protocols to maximize users’ returns. Algorithms and smart contracts are used for automated profit generation and asset management, allowing users to generate stable returns more effectively.

Yield aggregators may also reward users with tokens issued within platforms. Such tokens can serve various purposes within platforms, and users can hold them to receive additional benefits.

Below are some beloved yield aggregators in the market:

Curve Finance is a decentralized automated exchange for cryptocurrency trading with a particular focus on stablecoins and similar assets. Curve Finance offers low slippage and high liquidity for stable trading.

Curve Finance operates as follows:

Yearn Finance is a protocol and platform for cryptocurrency management in the DeFi ecosystem. Yearn Finance automatically optimizes users’ assets and invests in various DeFi protocols for optimal returns, allowing users to efficiently manage their assets and pursue stable returns.

Yearn Finance operates as follows:

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