Yield Farming

Yield farming is a DeFi (decentralized finance) term for leveraging DeFi protocols and products to generate high returns that sometimes reach over 100% in annualized yields 'when factoring in interest, token rewards, "cashback" bonuses, and other incentives.'^[1]^[2]

Yield farming is a way for cryptocurrency enthusiasts to maximize their returns. It typically involves users lending or locking up their funds using smart contracts. In return, users earn fees in the form of crypto.

The term originated in the summer of 2020. In cryptocurrency, users who participate in yield farming are known as "farmers".^[3]

Introduction

Yield farming is the practice of trying to acquire the best yield from DeFi products and protocols. As a result, various cryptocurrencies have seen a massive jump in price.

Crypto lenders including Genesis have seen a rise in stablecoin borrow rates, specifically within short-term stablecoin and ERC-20 rates.

Popular Yield Farming Protocols

COMP Farming

"Farmers" have been buying into Compound (COMP), an Ethereum (ERC-20) digital asset that powers the Compound protocol. In order to acquire a yield on Compound, the user must deposit collateral, which can be in Ether (ETH) or any ERC-20 token that Compound supports. 2,880 COMP are distributed daily, proportional to the amount of assets the have locked up on the platform.

There are even third-party projects that facilitate COMP farming like the smart wallet project InstaDApp, which unveiled a “Maximize $COMP mining” Widget. It allows users to borrow and deposit assets simultaneously in order to get more COMP.

BAL Farming

Balancer is a platform that lets users create liquidity pools composed of multiple ERC20 tokens. It was inspired by the Uniswap protocol which supports 1:1 pools. In June of 2020, the Balancer team started a liquidity mining campaign.145,000 BAL is distributed to people who put funds on the platform every week.^[4]

Curve-Ren-Synthetix Farming Meld

Users who provide WBTC, renBTC, and sBTC liquidity to the BTC Curve liquidity pool will earn BAL, SNX, REN, and CRV. This is possible because Synthetix and Ren created a Balancer pool composed of SNX and REN tokens. This liquidity mining generates BAL, as well as liquidity provider (LP) rewards in the form of BPT, a wrapped combination of SNX and REN.