What is yield farming in decentralized finance (DeFi)?

Yield farming isn’t just about passive income — it’s a game of token velocity. The constant reinvestment of rewards into new pools fuels DeFi’s growth but also creates Ponzi-like risks.

Yield farming, also known as liquidity mining, is a decentralized finance (DeFi) strategy where cryptocurrency holders lend or stake their assets in various DeFi protocols to earn rewards. These rewards often come in the form of additional tokens, interest or a share of transaction fees generated by the platform. 

In the yield farming ecosystem, individuals known as liquidity providers (LPs) supply their assets to liquidity pools, smart contracts that facilitate trading, lending or borrowing on DeFi platforms.

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