🧑‍🌾What is Yield Farming

Yield farming is extracting the maximum value possible from other dApps that provide yield, for example, staking and lending services. The process of yield farming for a user is very similar to a bank. In a bank and a yield farm, a user will deposit their coins and receive a percentage yield; however, the difference lies in how this yield is earned.

Methods of earning Yield:

• Liquidity Providing - Users deposit two coins into a yield farming application to form a liquidity pair. This dApp then uses these deposited coins to provide liquidity to a DEX, earning the users a portion of the exchange fee.

• Lending - This is a user that offers their coins to be loaned out to borrowers that want to boost the number of tokens they hold in a vault. Executed via a smart contract, yield is earned from interest paid on the loan.

• Staking - There are two forms of staking. Firstly, users can stake a project's native token and earn a yield; this yield is usually derived directly from the profits of the project. Secondly, Proof-of-Stake staking. Users are paid interest to pledge their tokens to supply security to the blockchain’s network.