DeFi Yield Farming: An Introductory Guide
Written by  Daisie Team
Published on 8 min read


  1. What is DeFi Yield Farming?
  2. How does DeFi Yield Farming work?
  3. Benefits of DeFi Yield Farming
  4. Risks in DeFi Yield Farming
  5. How to start with DeFi Yield Farming
  6. Yield Farming strategies
  7. Popular platforms for DeFi Yield Farming
  8. Future of DeFi Yield Farming

Picture this: you're looking to make your cryptocurrency work harder for you, and you stumble upon the concept of DeFi Yield Farming. You might ask, "What's all the buzz about?" Well, you're at the right place because this is your introduction to yield farming in DeFi. In this guide, you'll learn how to navigate the fields of DeFi Yield Farming, uncover its benefits, and even get to grips with some strategies to maximize your crop of returns. So, sit back, relax, and let's set foot into the world of DeFi Yield Farming.

What is DeFi Yield Farming?

When you hear the term "DeFi Yield Farming," it's easy to imagine a digital farmer toiling away in the fields of cryptocurrency. And, you're not far off from the truth. DeFi, or Decentralized Finance, is a system that's shaking up the traditional financial landscape. It removes the middlemen — the banks and brokers — and puts you in control of your financial destiny.

Now, let's focus on the "Yield Farming" part. Yield Farming is essentially a way to make your crypto assets work harder for you. Think of it as planting a seed (your cryptocurrency) and nurturing it till it yields a healthy crop (returns). Here's how it works:

  1. You provide liquidity (read: lend your crypto assets) to a DeFi platform.
  2. In return, you earn rewards, often in the form of more cryptocurrency.
  3. The more you lend, the more you stand to earn. So, in the Yield Farming world, it pays to be generous.

Let's illustrate this with an example. Let's say you have some Ethereum (ETH) lying around. Instead of letting it gather digital dust, you lend it on a DeFi platform like Uniswap. In return, you earn UNI tokens. The more ETH you lend, the more UNI tokens you stand to earn. It's as simple as that!

At its core, yield farming in DeFi is about maximizing returns by strategically lending your crypto assets on different DeFi platforms. It's a dynamic, rewarding, and sometimes complex field. But don't worry, you're about to get a solid introduction to yield farming in DeFi. So, are you ready to jump on the tractor and start farming?

How does DeFi Yield Farming work?

Let's break it down and dive right into the details of how DeFi Yield Farming operates. Remember, it's all about lending your cryptocurrency to a DeFi platform, so let's look at this process step by step:

  1. You start off by choosing a DeFi platform where you want to lend your crypto assets. This might be a platform like Compound or Aave. You'll need a digital wallet, like MetaMask, to interact with these platforms.
  2. Then, you deposit your crypto assets into the chosen platform. This process is called "adding liquidity" — imagine you're filling a pool (the platform) with water (your crypto).
  3. As a thank you for your liquidity, the platform rewards you with tokens. These tokens can represent your share of the pool and can often be traded for other types of cryptocurrency.
  4. Now here's where the 'farming' part comes in. You can take these earned tokens and deposit them into another DeFi platform to earn even more rewards. This is also known as "compound farming."

So, you see, yield farming in DeFi is like a game of strategic lending and earning. It's about finding the most fertile fields (read: platforms) where your seeds (crypto assets) can yield the best crop (returns). It's a continuous cycle of lending, earning, and then lending again to maximize your rewards. Now, isn't that an interesting way to make your cryptocurrency work for you?

While this may sound like a golden opportunity to earn passive income, always remember: with great rewards come great risks. But, don't fret! We'll cover those in detail in the next sections of this introduction to yield farming in DeFi.

Benefits of DeFi Yield Farming

Now that we've covered how DeFi Yield Farming works, it's time to highlight the benefits that make this strategy so compelling. After all, there must be some really good reasons for its growing popularity in the crypto world, right?

  1. Passive Income: The most obvious benefit is the potential for passive income. By lending your crypto assets, you earn rewards, and these rewards can be substantial depending on the platform you choose and the amount you lend.
  2. Financial Inclusion: DeFi Yield Farming is not restricted to any geography or traditional banking rules. As long as you have internet access and a digital wallet, you can participate. It's a step towards making financial systems more inclusive and accessible to everyone.
  3. Transparent and Trustless: Everything in DeFi is transparent and operates on smart contracts that execute automatically. No need for intermediaries or trust in third parties. It's just you, your assets, and the code.
  4. Liquidity Providers are in Control: Unlike traditional banking where your deposited money is used by the bank for lending at their discretion, in DeFi Yield Farming, you decide where your assets go and what they do.

Impressive, right? But remember, it's not all sunshine and rainbows. DeFi Yield Farming has its own set of challenges and risks, which we'll explore next in our introduction to yield farming in DeFi.

Risks in DeFi Yield Farming

As you dive deeper into your introduction to yield farming in DeFi, it's crucial to understand that while the rewards can be alluring, there are risks involved as well. Let's take a look at some of these risks:

  1. Smart Contract Vulnerabilities: DeFi platforms depend on smart contracts which are automated, self-executing contracts with the terms of the agreement directly written into lines of code. As ingenious as they are, they're not perfect. If a smart contract has a bug or loophole, it can be exploited, leading to loss of funds.
  2. Impermanent Loss: This is a unique risk to yield farming. When you provide liquidity to a pool, and the price of the deposited assets changes compared to when they were deposited, you can suffer what's called an impermanent loss. The larger the price change, the greater the loss can be.
  3. Regulatory Risks: The DeFi space is still relatively new and regulations surrounding these platforms are still evolving. Changes in regulations can affect your yield farming activities.
  4. Market Volatility: Crypto prices are notoriously volatile. Sharp price movements can impact your yield farming returns.

Despite these risks, many are drawn to DeFi yield farming due to its potential high returns. However, it's important to understand these risks and do your own research before jumping in.

Now that we've covered the risks, let's move on to how you can start your journey in DeFi Yield Farming.

How to start with DeFi Yield Farming

Feeling a bit adventurous? Thinking about stepping into the world of DeFi yield farming? Here's a simple step-by-step guide to help you get started:

  1. Pick Your Blockchain: The first step in your introduction to yield farming in DeFi is to pick the blockchain you want to operate on. Ethereum is the most popular one, but others like Binance Smart Chain or Polkadot are also viable options.
  2. Get Some Crypto: You'll need some cryptocurrency to start yield farming. The type of crypto you'll need depends on the blockchain you chose. For Ethereum, you'll need Ether (ETH).
  3. Choose a Wallet: You'll need a digital wallet to store and manage your crypto. Wallets like Metamask or Trust Wallet are popular choices among yield farmers.
  4. Select a DeFi Platform: Next, you'll need to pick a DeFi platform. Some popular ones include Uniswap, SushiSwap and Yearn Finance. Each platform has its own features and benefits, so make sure to do your research!
  5. Start Farming: Once you've picked your platform, you can start farming! This usually involves lending your crypto to the platform's liquidity pool. In return, you'll earn interest and possibly additional tokens.

Remember, while the process might seem simple, it's important to fully understand the risks and potential rewards. Yield farming in DeFi requires constant attention and management. But with careful planning and a bit of luck, you could reap substantial rewards.

So, are you ready to get your hands dirty with some yield farming?

Yield Farming Strategies

Now that you've dipped your toes into DeFi yield farming, let's dive a little deeper and explore some strategies. Remember, it's not just about jumping in — it's about making smart, informed decisions. So, here are a few strategies you might want to consider:

  1. Staking: This is the most basic strategy in yield farming. You simply stake your crypto in a DeFi platform's liquidity pool and earn interest. The more you stake, the more you earn, but remember — more is not always better. It's about finding the right balance.
  2. Platform Hopping: In the fast-paced world of DeFi, new platforms pop up all the time. Each one offers different rates and incentives. By moving your assets from one platform to another, you can maximize your returns. But beware, this strategy requires a lot of time and attention, and not all platforms are created equal.
  3. Compound Farming: In this strategy, you reinvest your earnings back into the liquidity pool. This increases your stake and your potential earnings — it's like a snowball effect. But remember, while compounding can boost your returns, it can also magnify your losses.
  4. Risk Diversification: Don't put all your eggs in one basket. Spread your assets across different platforms and pools. This way, if one investment does poorly, others may do well, balancing out your overall returns.

Remember, these strategies are not one-size-fits-all. What works for one yield farmer might not work for another. It's about finding what fits your risk tolerance, your investment goals, and your lifestyle. So, are you ready to strategize your way to success in yield farming?

Now that you've got a grasp of the strategies, let's talk about where you can actually put them into practice. Here are some of the popular platforms in the world of DeFi yield farming:

  1. Uniswap: Known as the king of DeFi, Uniswap is a decentralized exchange where you can swap, stake, and earn. With a user-friendly interface and a wide range of tokens, it's a favorite among yield farmers.
  2. Compound: If you're interested in the compound farming strategy, then Compound is your go-to platform. Here, users lend and borrow cryptocurrencies, earning interest all the way.
  3. This one's for the busy bees. uses automated strategies to find the most profitable yield farming opportunities, saving you the hassle.
  4. Curve Finance: Specializing in stablecoins, Curve Finance offers low slippage, low fee swaps. It's a great platform if you want to reduce risk and maintain the value of your assets.
  5. SushiSwap: An offshoot of Uniswap, SushiSwap offers similar services but with a twist — it rewards users with its own token, SUSHI, which can be staked for additional earnings.

There you have it — five platforms to start your yield farming adventure. Each one is unique, offering different opportunities and rewards. So, take your time, do your research, and find the one that suits you best. After all, in the world of DeFi yield farming, the platform you choose can make a big difference!

Future of DeFi Yield Farming

Alright, so we've gone through the basics, the strategies, and the platforms. But where is yield farming in DeFi headed? What does the future look like?

Well, the truth is, nobody can predict the future with certainty. Especially in a field as new and dynamic as DeFi. But we can certainly make some informed guesses based on what we know.

First off, it's clear that DeFi yield farming is not just a passing fad. It's a fundamental shift in how we think about finance. It's all about decentralization, about giving power back to the people. And that's a trend that's not going away anytime soon.

Second, as more and more people get introduced to yield farming in DeFi, the competition is bound to get fiercer. Yield farmers will need to keep learning, adapting, and innovating to stay ahead of the game. And those who do will reap the rewards.

Lastly, we can expect to see more regulation in the space. As DeFi becomes mainstream, governments and regulatory bodies will want to ensure that it's safe and fair for all. This might mean more paperwork and compliance, but it could also lead to greater stability and trust in the system.

So, are you ready for the future of DeFi yield farming? It's an exciting journey, full of opportunities and challenges. But one thing's for sure — it's a journey worth taking.

If you're intrigued by DeFi yield farming and want to learn more about the world of decentralized finance, check out the workshop 'Start Your web3 Journey' by Tom Glendinning. This workshop will provide you with the knowledge you need to navigate the world of web3 and make the most of your DeFi experience.