Yield Farming
defi strategy • yield optimization • protocol rotation
Yield Farming is a decentralized finance (DeFi) strategy where users stake or lend their crypto assets to earn passive income—typically in the form of interest, trading fees, or protocol reward tokens. It is often executed through liquidity pools or lending platforms that incentivize users to contribute capital.
Use Case: A user deposits $FLR and $sFLR into a liquidity pool on a DEX and then stakes the LP tokens in a secondary farm to earn additional rewards in the platform’s native governance token. This creates layered yield from both trading fees and staking incentives.
Key Concepts:
- LP Farming — Staking liquidity pool tokens for extra rewards.
- APY Chasing — Moving capital between protocols offering the highest yields.
- Leverage Farming — Borrowing assets to increase exposure and returns.
- DeFi Risk — Exposure to smart contract bugs, rug pulls, and token volatility.
Summary: Yield farming offers powerful passive income strategies in DeFi but carries high risk, especially when chasing high APYs. Understanding liquidity mechanics, protocol security, and market timing is essential for maximizing gains while avoiding losses during volatile cycles.