Yield Farming & Earning in DeFi

Yield farming means deploying your crypto into DeFi protocols to earn returns. Sources include trading fees from providing liquidity, interest from lending, token incentives from protocols, and staking rewards. The simplest form is depositing stablecoins into a lending protocol for 3-8% APY, relatively low risk and a solid starting point.

More aggressive strategies involve providing liquidity to DEX pools for a share of trading fees plus potential token rewards. But high yields always come with higher risk. The most important risk for liquidity providers is impermanent loss, if one token's price moves significantly, you may end up with less value than holding both tokens separately.

APY vs APR: APY includes compound interest, APR does not. A 100% APY actually equals roughly 69% APR. Yield aggregators like Yearn Finance auto-compound rewards to maximize returns. In 2025, the landscape is more mature than the early 'DeFi Summer' days, unsustainable 1000% APY farms have been replaced by realistic opportunities.

Restaking protocols like EigenLayer have introduced new yield sources. Liquid staking (Lido's stETH, Rocket Pool's rETH) lets you earn staking yield while keeping ETH liquid for DeFi. The key to successful yield farming: understand where the yield comes from. If you can't identify the source of returns, you might be the yield. Start conservative and scale up as your knowledge grows.