Yield Farming in DeFi
Strategy of lending or staking digital assets in DeFi protocols to earn rewards, often compounded.
What is Yield Farming in DeFi?
Yield farming involves depositing assets into pools on platforms like Aave or Compound, earning APYs from fees and tokens—e.g., 10% on USDC yields $1,000 yearly on $10,000 stake. Farmers optimize via aggregators like Yearn.finance, auto-shifting to 20%+ pools across chains.
LP farming on Uniswap generates 5-50% from 0.3% swaps, but impermanent loss offsets 20% in volatile pairs; stablecoin farms like Curve yield 2-8% with $20 billion TVL. Leveraged strategies borrow to amplify (e.g., 3x on $10k = 30% effective).
$100 billion DeFi TVL in 2025 hides risks: $4 billion hacks, rug pulls, and liquidation cascades, yet it democratizes 15% average returns versus 0.5% savings accounts.
Related Terms
Bayesian Truth Serum
A mechanism that elicits truthful subjective opinions by rewarding predictions that align with unexpectedly common beliefs.
TWAP (Time-Weighted Average Price)
An average price calculated over a specific time period to reduce volatility impact.
Gas (Ethereum)
A unit measuring the computational effort required to execute transactions or smart contracts on Ethereum.
Ethereum (ETH)
A decentralized blockchain platform that pioneered smart contracts, enabling programmable money and decentralized applications.
Dodd-Frank Act Stress Tests (DFAST)
Annual assessments by the Federal Reserve evaluating large banks' capital adequacy under hypothetical severe economic scenarios to ensure resilience.
Consumer Price Index (CPI)
A monthly measure of average price changes in a fixed basket of goods and services purchased by urban consumers, produced by the Bureau of Labor Statistics.