What is Yield farming?
Chasing token incentives across protocols to earn the highest annualised yield.
Protocols bootstrap liquidity by paying rewards in their own token. Those rewards often inflate the quoted annual percentage yield far above the fee income.
If the reward token falls by half while you earn it, the headline yield can still be a loss. Judge yield in what you actually keep, not what is printed.
Related terms
- Liquidity poolDeFi
Tokens locked in a contract that traders swap against, earning the pool's fee share.
- StakingDeFi
Locking tokens to back a network or a protocol, usually for a yield of new issuance or fees.
- InflationMacro
The rate at which prices rise, and the reason 'hard-capped supply' is a selling point.