A decentralised finance strategy where users deposit cryptocurrency into DeFi protocols (such as lending platforms, liquidity pools, or staking contracts) to earn returns in the form of interest payments, trading fees, or governance token rewards. Yield farmers often move capital between multiple protocols to maximise returns, employing complex strategies including leveraged positions, multiple staking layers, and protocol-specific incentive programs. The practice carries significant risks including smart contract vulnerabilities, impermanent loss, token price volatility, and protocol insolvency.
Example
“The yield farmer deposited stablecoins into a lending protocol at 8% APY, then staked the receipt tokens in a yield aggregator for an additional 5% in governance token rewards.”