yield farming is a DeFi (decentralized finance) term for leveraging DeFi protocols and products to generate high returns, sometimes exceeding 100% annual returns, “when interest, token rewards, “cashback” bonuses and other incentives are taken into account”.[1][2]
Yield farming is a way for cryptocurrency enthusiasts to maximize their returns. Typically, these are users who lend or lock their funds using smart contracts. In return, users earn fees in the form of crypto.
The term originated in the summer of 2020. In cryptocurrency, users who participate in yield farming are referred to as “farmers”.[3]
Yield farming is the practice of getting the best yield from DeFi products and protocols. As a result, various cryptocurrencies have seen massive price jumps.
Crypto lenders, including Genesis, have seen stablecoin lending rates spike, particularly at the short-term stablecoin and ERC-20 rates.
COMP farming
Farmers have bought into Compound (COMP), an Ethereum (ERC-20) digital asset that supports the Compound protocol. In order to earn a return on Compound, the user must deposit collateral, which can be in Ether (ETH) or any ERC-20 token that supports Compound. 2,880 COMP are distributed daily, proportional to the amount of assets locked on the platform.
There are even third-party projects that facilitate COMP farming, like smart wallet project InstaDApp, which featured a “Maximize $COM Mining” widget. It allows users to borrow and deposit assets at the same time to get more COMP.
Balancer is a platform that allows users to create liquidity pools consisting of multiple ERC20 tokens. It was inspired by the Uniswap protocol that supports 1:1 pools. In June 2020, the Balancer team started a liquidity mining campaign. 145,000 BAL is distributed each week to people who put money on the platform.[4]
Curve-Ren-Synthetix Farming Meld
Users who provide WBTC, renBTC and sBTC liquidity to the BTC Curve liquidity pool earn BAL, SNX, REN and CRV. This is possible because Synthetix and Ren created a balancer pool consisting of SNX and REN tokens. This liquidity mining generates BAL as well as Liquidity Provider (LP) rewards in the form of BPT, a wrapped combination of SNX and REN.
The boom in yield farming spawned massive amounts of memes across the internet.[5]
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