Yield Farming

Yield farming is deploying crypto across DeFi protocols to stack trading fees, interest, and token rewards. It took off in 2020 during DeFi Summer, when protocols paid governance tokens to liquidity providers and advertised very high APYs that pulled in billions. The job is to find the highest yields across lending, pools, and staking, then move capital as rates change.

Complex loops deposit in protocol A, take receipt tokens, post them as collateral in protocol B, borrow, and deposit in protocol C. Each layer adds return and risk. Contract bugs can drain pools. Impermanent loss eats gains. Reward tokens inflate and crash. Gas costs wipe small positions. Many APYs are not durable. They come from emissions that taper. Early farmers captured the best rates.

Latecomers got less. Yield farming still showed that programmable money can run stacked strategies without a bank in the middle. Complex strategies involve depositing into protocol A, receiving receipt tokens, using those as collateral in protocol B, borrowing to deposit in protocol C. Each layer adds returns but also compounds risk.

Yield farming APYs are often unsustainable, driven by token emission schedules that decline over time. Compound's COMP rewards (2020) paid people to supply and borrow. That loop is what people still call yield farming.