What is Yield Farming?

What is Yield Farming?

Yield Farming is a form of income that allows you to earn more cryptocurrencies with the cryptocurrencies you have. Yield Farming allows you to securely lend your cryptocurrency via smart contract. In return for this service, you will receive gift tokens in the form of cryptocurrency. In other words, we can call it Liquidity Mining because liquidity is provided. The reason why the Yield Farming model has become popular is related to the recent proliferation of decentralized finance, or DeFi, projects.

Yield Farming actually runs the Aave (LEND), Compound (COMP) and Maker (MKR) applications under the DeFi umbrella. To explain with an example, investors lock their ETH in one of these 3 networks. Then, gift liquidity comes from whichever network he/she prefers. When it reaches maturity, it can be converted back into ETH which it has locked again.

DeFi projects attracted a lot of attention in 2020. Thanks to this interest and popularity, the Yield Farming application has also become quite popular. Accordingly, the lending system works as follows; The cryptocurrency user adds the cryptocurrencies he has to the pool. It is kept for processing for a certain period of time. Once the cryptocurrency is added to the pool, you cannot access it until it expires. Therefore, you cannot make any changes when the invested coin type declines. However, Yield Farming is different from classic term deposit accounts. Because the system gifts tokens in exchange for the locked coins. In addition, the investor can use the asset he added to the pool for other purposes, provided that the interest does not change during the maturity period.

The token gifted in the Yield Farming model is usually Ethereum. Although this reward system has been implemented in the Ethereum ecosystem so far, cross-chain bridge developments seem to make such DeFi applications independent in the future.

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