What is yield farming in decentralized finance (DeFi)?

Quick Summary:

These rewards often come in the form of additional tokens, interest or a share of transaction fees generated by the platform. In the yield farming ecosystem, individuals known as liquidity providers (LPs) supply their assets to liquidity pools, smart contracts that facilitate trading, lending or borrowing on DeFi platforms.

Understanding impermanent loss in yield farming Impermanent loss occurs when the value of assets deposited into a liquidity pool changes compared to their value if held outside the pool. This phenomenon arises due to price fluctuations between paired assets, leading to a potential shortfall in returns for LPs.

As of February 2025, yield farming remains a profitable strategy, though it is less lucrative than in previous years due to reduced token incentives and heightened competition among liquidity providers. That being said, the DeFi sector continues to expand rapidly, with the total value locked (TVL) reaching $129 billion in January 2025, reflecting a 137% year-over-year increase.

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Article Details

Author / Journalist: Cointelegraph by Jagjit Singh

Category: Crypto

Markets: United States

Topics: DeFi Altcoin Investments Yield farming

Source Website Secure: Yes (HTTPS)

News Sentiment: Negative

Fact Checked: Legitimate

Article Type: News Report

Published On: 2025-03-11 @ 09:45:00 (1 days ago)

News Timezone: GMT -5:00

News Source URL: cointelegraph.com

Language: English

Article Length: 1696 words

Reading Time: 10 minutes read

Sentences: 90 lines

Sentence Length: 19 words per sentence (average)

Platforms: Desktop Web, Mobile Web, iOS App, Android App

Copyright Owner: © Coin Telegraph

News ID: 26907414

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