Yield Farming

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DeFi Strategies • Yield Models • Token Income

incentivized liquidity provision

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
Impermanent Loss — Value erosion when pooled assets diverge in price
Liquidity Pool — The foundation of most farming strategies
Auto-Compounding — Automated reinvestment of farming rewards
Token Devaluation — Reward token inflation reducing real yields

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.

Feature	Traditional	Web3
Income Source	Savings Interest	Protocol Rewards & Fees
Risk Profile	Bank Insolvency	Smart Contract Exploits
Capital Control	Custodial	Non-Custodial (User-Controlled)
Accessibility	Requires KYC & Credit Checks	Permissionless Access via Wallet

Farm Type Reference

understanding different yield sources

Farm Type	How It Works	Risk Level	Typical APY
LP Farming	Stake LP tokens from liquidity pools	Moderate (IL + contract)	10-50%
Single-Asset Staking	Stake one token for rewards	Low-Moderate	5-20%
Lending Farms	Supply assets to lending protocols	Moderate (liquidation)	3-15%
Leverage Farms	Borrow to amplify LP positions	High (liquidation + IL)	50-200%+
Incentive Farms	New protocols emitting tokens	High (token dump risk)	100-1000%+
Real-Asset Farms	Yield from tokenized assets	Low (backed by real value)	3-10%

Farming Risk-Reward Framework

balancing APY against exposure

Foundation Farms
(3-15% APY)

• Stablecoin pairs
• Blue-chip lending
• Real-asset yield ($KAG/$KAU)
• Minimal IL risk

Role: Capital preservation base

Growth Farms
(15-50% APY)

• Major token LPs
• Established protocol incentives
• Validator-backed staking
• Manageable IL exposure

Role: Core yield generation

Degen Farms
(50-1000%+ APY)

• New token launches
• Leverage positions
• Meme token pairs
• Extreme IL and rug risk

Role: Small allocation, high risk/reward

Yield Farming Checklist

before entering any farm

Protocol Due Diligence

☐ Smart contract audited
☐ Team doxxed or reputable
☐ TVL history stable
☐ No recent exploits
☐ Governance active
☐ Community sentiment positive

APY Reality Check

☐ Understand yield source (fees vs emissions)
☐ Check reward token price history
☐ Calculate real APY after IL
☐ Factor in gas costs
☐ Verify emission schedule
☐ Assess sustainability (>6 months?)

Platform Options

☐ SparkDEX Farms — FLR ecosystem
☐ Cyclo — liquid staking yield
☐ Enosys — lending + incentives
☐ Major DEX farms (Uniswap, Curve)
☐ Auto-compounders (Beefy, Yearn)
☐ Native chain farms for gas efficiency

Exit Strategy

☐ IL threshold defined for exit
☐ APY decay trigger set
☐ TVL drop alert configured
☐ Ledger ready for profit rotation
☐ $KAG/$KAU destination for preservation
☐ Never marry a farm — always exit plan

Capital Rotation Map (Crypto Cycle Flow)

farming strategy across rotation phases

BTC
Phase 1
Foundation Farms

ETH
Phase 2
Blue-Chip Farms

Large Alts
Phase 3
Growth Farms

Small Alts
Phase 4
Incentive Farms

Memes/NFTs
Phase 5
Exit Farms

Preservation
Phase 6
Real-Asset Only

Farm Rotation Logic: APY means nothing if you exit at the wrong time. Phase 1-2: Stick to Foundation and Blue-Chip farms — stable yield, low drama. Phase 3-4: Growth and Incentive farms open — higher APY but watch for token dump timing. Phase 5: Exit all aggressive farms — reward tokens crater during corrections, IL accelerates. Phase 6: Only real-asset farms remain viable — $KAG/$KAU yield, stablecoin lending, validator staking. The best farmers aren’t the ones who find 1000% APY — they’re the ones who exit before APY becomes IL minus 50%.

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