What is Yield farming?

Providing liquidity or staking assets to a protocol in exchange for rewards, usually paid in the protocol's token.

How it works

You deposit assets and earn yield, but the reward token's price can fall faster than you earn it, and you take on smart-contract and impermanent-loss risk. High APY often means high, under-compensated risk.

Example

In practiceYou deposit into a farm advertising 200% APY; the reward token drops 90%, wiping out the yield you earned.

Is high APY always good?

No — unsustainable APY usually pays in a token that's inflating away. Check where the yield comes from and what can go wrong.

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