What is yield farming?

What Is Yield Farming?

Yield farming means putting your crypto to work in DeFi to earn more crypto. You might lend assets in a lending protocol, provide liquidity to a trading pair in an AMM, or stake LP tokens. In return you earn interest, trading fees, or extra tokens. Returns can be high but come with smart contract risk, volatility, and sometimes impermanent loss.

How It Works

You connect your wallet to a DeFi app, approve the contract, and deposit tokens. The protocol uses them (e.g. for lending or as liquidity). You receive tokens that represent your share and often additional reward tokens. You can compound by reinvesting rewards.

Risks

Smart contracts can be exploited. Token prices can crash. Impermanent loss can reduce your value vs simply holding. In India, yield may be taxable. Only use well-audited protocols and amounts you can afford to lose.