Yield Farming Definition
Yield farming, also known as liquidity mining, refers to a method used by cryptocurrency holders to earn rewards by lending or staking their assets in a blockchain-based liquidity pool.
Yield Farming Key Points
- Yield farming is a method of generating returns on cryptocurrency holdings.
- It involves lending or staking cryptocurrencies in liquidity pools.
- The process uses an automated market maker system to match borrowers to lenders.
- Yield farming is often conducted on DeFi (Decentralized Finance) platforms on the Ethereum blockchain.
- The return from yield farming is usually represented as a percentage annual yield.
What is Yield Farming?
Yield farming is a strategy used in the field of decentralized finance (DeFi). It leverages crypto holdings to generate high returns from gleaning cryptocurrency rewards.
Where is Yield Farming used?
Yield farming operations are typically seen in the Decentralized Finance (DeFi) space. Predominantly, it happens on Ethereum-based DeFi platforms where individuals can lend or stake their cryptocurrency assets in return for rewards.
Who uses Yield Farming?
Yield farming is predominantly used by cryptocurrency holders who have spare digital assets that they wish to stake. Other users include DeFi platforms that offer users the opportunity to earn rewards by participating in yield farming.
When was Yield Farming introduced?
Yield farming gained traction in 2020 when Compound, a DeFi lending platform, began issuing their native COMP token to lenders and borrowers as a reward.
Why is Yield Farming important?
Yield farming is important because it provides a strategy for cryptocurrency holders to earn passive income. Furthermore, it spurs the growth of the DeFi ecosystem by incentivizing user participation and liquidity provision.
How does Yield Farming work?
Yield farming works by leveraging a practice known as staking. Stakers lock up their cryptocurrencies in a liquidity pool. These pooled assets are then lent out to borrowers who pay interest and generate yield for the stakers. The stakers may receive rewards in the form of additional tokens from the liquidity pool platform, thereby multiplying their potential rewards.
