Yield farming is a strategy in decentralized finance (DeFi) where someone allocates their digital assets to various DeFi protocols to generate the highest APY return from lending or other activities.
Let’s take a lending protocol, for example. When you deposit your digital asset with this lending protocol, in return you might receive that protocol’s governance token in addition to the promised yield for lending your assets. From there, you might lend out on another platform the governance token rewards as you receive them. So instead of only receiving a yield on one asset, now you would be earning yield on two or more assets. The strategy is scalable and can get more complex and advanced as the number of assets and number of pools that someone joins. The opportunities are endless.
At the end of the day, yield farmers are in the business of maximizing returns by taking advantage of arbitrage opportunities and maximizing yield.