From TokenPost · · 1m
Yield Farming Explains Crypto Returns
Crypto yield farming uses lending, trading fees and token rewards to generate returns.
In brief
Crypto yield farming uses lending, trading fees and token rewards to generate returns. Yield farming in DeFi strategies earns returns through lending interest, trading fees or token rewards. Originally reported by TokenPost.
What is yield farming
Yield farming places crypto assets in decentralized finance strategies that may earn lending interest, trading fees or token rewards.
Where yield comes from
In a lending market, interest is tied to a supply rate that changes with pool utilization and governance parameters.
Liquidity provider earnings
Liquidity providers may earn fees from trades in a pool or receive token incentives set by a protocol.
Reinvestment process
Some vaults collect rewards, swap them into the vault’s underlying asset and redeposit them automatically.
APR and APY differences
Annual percentage rate expresses an annualized return without compounding while annual percentage yield includes compounding.
Risks in yield farming
Liquidity providers face impermanent loss, smart-contract risks and liquidation risks when borrowing.
What to remember
Yield farming in DeFi strategies earns returns through lending interest, trading fees or token rewards.
