What Is Yield Farming?

The basic idea

Yield farming generally refers to actively moving crypto assets between different DeFi protocols — lending, providing liquidity, staking — in pursuit of the highest available return, sometimes combining multiple strategies or protocols at once.

Where the yield actually comes from

• Trading fees paid by users of a liquidity pool.
• Interest paid by borrowers in a lending protocol.
• Token incentives a protocol distributes to attract participants, which can be a temporary promotional mechanism rather than a durable, ongoing source of return.

Real risks behind the advertised number

An advertised yield percentage doesn't capture every risk: smart contract bugs, impermanent loss, a protocol's governance or economic design failing, or the reward token itself losing significant value. A very high advertised yield often reflects higher underlying risk, not a free source of extra return.

What to remember

• Yield farming means actively seeking the best available DeFi return, often across multiple protocols.
• Yield can come from trading fees, interest, or temporary token incentives.
• Real risks include smart contract failure, impermanent loss, and reward-token price declines.
• A very high advertised yield usually signals higher risk, not free return.