Yield farming, also known as liquidity mining, is gaining popularity in the cryptocurrency industry. It involves receiving reward tokens in exchange for locking or staking cryptocurrencies. The concept of yield farming has come from Decentralized Finance (DeFi) space. As the DeFi space has started gaining popularity, subsequently the concept of yield farming is driving attention in the cryptocurrency industry.
The rising popularity has resulted in the emergence of various projects offering returns of rewards in the form of new cryptocurrency tokens through yield farming. However, although the rewards carry certain benefits, there are risks and dangers of farming. In this article, we examine the basics of yield farming and the risks that it poses to a crypto farmer.
DeFi Yield Farming
Decentralized Finance incorporates an ecosystem of blockchain applications in the banking and finance sector. One of the applications of DeFi rests in lending and borrowing assets. With yield farming, users can lend their cryptocurrency assets in different DeFi projects and in exchange receive rewards in the form of their native cryptocurrency tokens.
Source: DeFi Pulse
A crypto farmer can put their cryptocurrencies like Ethereum in DeFi projects and receive interest, rewards, or bonuses. However, although the concept sounds simple, it subsequently carries a fair amount of risks. Moreover, if a yield farmer is not careful, they can subsequently lose their crypto assets.