Digital assets
Yield farming
Moving crypto between protocols to capture the highest available rewards.
How it works
Returns come from trading fees, lending interest and newly issued governance tokens. Advertised rates are frequently very high.
Those rates compensate for smart contract risk, token price risk and the risk that the incentive programme simply ends.
Where it misleads people
An advertised yield in the hundreds of percent is a statement about token emissions, not about income. It is usually paid in a token whose price falls as fast as the rewards accrue.
Related terms
- Decentralised financeFinancial services built from smart contracts rather than from institutions.
- StakingLocking up tokens to help validate a network, in exchange for a reward.
- Smart contractCode deployed on a blockchain that executes automatically when its conditions are met.
- Liquidity riskThe risk of not being able to sell when you want to, without accepting a bad price.
More in Digital assets
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.