What it is
Participants, known as yield farmers, typically deposit assets into liquidity pools or lending protocols to earn interest, trading fees, or newly minted governance tokens. They often move their capital between different protocols or chains in pursuit of the highest Annual Percentage Yield (APY). This process often involves leveraging assets, staking, and re-staking to compound returns, aiming to optimize earnings from their crypto holdings.
Yield farming is a significant activity within the Ethereum DeFi ecosystem, driving demand for various tokens and protocols. News frequently highlights new "farm" opportunities, changes in APY, or security exploits affecting farming strategies. Retail investors participate in yield farming to generate passive income from their crypto assets, but must navigate complex smart contract risks, high gas fees, and the potential for impermanent loss.
Why it matters
Yield farming offers ways to earn high returns on crypto assets, but involves considerable complexity, risk, and often high transaction costs.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice