What is Yield Farming?
Yield Farming is a way to generate passive income by investing your digital assets. The term got popularized by the DeFi community in the summer of 2020, through the launch of various different projects such as Yearn, Sushiswap, and Yam Finance.
Where does the yield come from?
The yield comes from the distribution of governance tokens. You can imagine these tokens as a company share or a voting right.
What qualifies as Yield Farming
Yield farming has become somewhat of a marketing term in the crypto space so it's important one understands what is and what is NOT yield farming.
- Yield farming requires a permissionless and trustless application or protocol built on a decentralized blockchain like Ethereum.
- Hence, it is not yield farming if the program requires a user signup (name, email, etc) or users to submit to KYC (know-your-customer).
- Yield farming often requires lending liquidity as a liquidity provider (aka LP) in an automated market maker like Uniswap. Remember, the point of most yield farming programs is to bootstrap liquidity and so it starts with this core concept.
- Yield farming should result in one earning multiple forms of yield simultaneously. Those yield include but are not limited to lending interest, trading fees, and/or governance tokens.
- It is not mandatory but it is common for DeFi teams to require yield farmers to signal their intent to support the protocol by depositing (aka staking) the LP token received in exchange for providing liquidity.
How to get started Yield Farming
Yield farming requires just a few tools to begin discovering and engaging with opportunities.
Wallet: A compatible wallet like MetaMask or a hardware wallet paired with MetaMask such as the Ledger or the GridPlus Lattice1 allows one to securely interact with DeFi applications that host yield farming programs.
Zapper Farms: To discover hundreds of yield farming opportunities, go to zapper.fi/farm and search by token or protocol for potential farms that might interest you. If a farm requires you to be a liquidity provider, return to the Zapper Farm tab to click Show Available to Stake and then click the Stake button to deposit the LP token and start earning rewards.
Zapper Pools: Go to the Zapper Pool tab to easily add liquidity to over 1500 liquidity pools, using any token. Zapper will trade your starter tokens for the appropriate pool tokens in the correct pool ratio.
Here's some helpful links to get you started: