Yield farming is the practice of strategically moving cryptocurrency assets between different DeFi protocols to maximize returns. Farmers seek the highest yields from lending, liquidity provision, and staking.
Yield farming strategies: Providing liquidity to DEXs, lending on platforms like Aave, staking governance tokens, leveraged farming, and yield aggregator protocols.
Yield sources include trading fees from liquidity provision, interest from lending, governance token rewards, and protocol incentives.
Risks of yield farming: Smart contract vulnerabilities, impermanent loss, liquidation risk, gas costs eating profits, and unsustainable high APYs.