What Is Yield Farming in DeFi?
Yield farming is the latest craze in crypto and is the key reason behind the DeFi explosion going on right now, So what exactly is it? Well, yield farming entails lending crypto to earn more crypto. It is a break from the past where to make money in crypto, you either had to HODL or trade on price movements speculation. Essentially, a yield farmer will look for DeFi pools that offer the highest lending rates and lend with the aim of maximizing their crypto holding as much as possible.
Sounds too complicated? If you are a newbie in the DeFi space, you are probably wondering what is yield and how farming relates to crypto, right? To understand farming, you need to relate it to a bank account.
When you open a bank account and save money, you expect a return on your savings since the bank uses your money to earn through lending. The interest the bank pays is your yield. It is the same with DeFi yield farming. The only difference is that unlike conventional banking economics, DeFi is trustless. When farming cryptocurrency, you overcollaterize, meaning that the platform does not need to do KYC. Your wallet represents you instead of your name.