What Is Yield Farming:
Yield farming is the act of putting your money into decentralized finance (DeFi) applications as a liquid provider to earn interest, fees, or other rewards. DeFi applications offer services that you would typically find in a bank and other financial institutions. These services include savings with interest, credit, and currency exchange (forex).
A Deeper Look at This Term:
Blockchain is often described as technology that could liberate the financial sector. However, its initial application, cryptocurrencies, were restricted to limited uses, such as decentralized stores of value and mediums of exchange.
Since then, newer and more sophisticated applications, such as smart contracts and decentralized anonymous organizations (DAO), have made it possible to provide banking services through DeFi applications.
These DeFi applications rely on users to provide the necessary liquidity. In return, these individuals get various types of rewards. Borrowing from the concept of mining for rewards in Bitcoin, the gains from DeFi applications have been aptly described as yield farming.
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