Technical Definition
Yield Farming
Moving capital between DeFi protocols to earn the highest available rewards, usually paid in a protocol's own token.
By Crypto University Editorial
Liquidity Pool · Impermanent Loss · APY (Annual Percentage Yield) · Token Emissions · Real Yield
✦ Key Insight
Advertised rates are the most misleading numbers in crypto, and the gap between headline APY and realised return is often the whole return.
✕ Common Misconceptions
Annualising a rate that reflects a temporary incentive. Also ignoring contract risk — chasing the highest yield systematically selects for the least battle-tested protocols.
Detailed Explanation
Protocols pay incentives to attract deposits, and farmers chase whichever pays most. Because rewards are usually paid in a newly issued token, the headline rate is a function of that token's price — which the farming itself tends to push down as farmers sell.
In Practice
“A farmer enters a pool advertising a high APY, and after fees, token depreciation and impermanent loss the position ends the month behind simply holding the two assets.”