What is yield farming in decentralized finance (DeFi)?

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 come in the form of additional tokens, interest, or a share of transaction fees generated by the platform. Liquidity providers (LPs) supply their assets to liquidity pools, smart contracts that facilitate trading, lending, or borrowing on DeFi platforms. By contributing to these pools, LPs enable the smooth operation of decentralized exchanges (DEXs) and lending platforms and earn rewards in return. Yield farming differs significantly from traditional financial yield mechanisms in terms of accessibility, potential returns, and intermediaries. As of 2025, yield farming remains a profitable strategy, though it is less lucrative than in previous years due to reduced token incentives and heightened competition among LPs. The DeFi sector continues to expand rapidly, driven by advancements in liquid staking, decentralized lending, and stablecoins, creating new and potentially lucrative yield farming opportunities. To navigate yield farming, individuals must choose a platform, select a liquidity pool, stake and farm tokens, and implement effective risk management strategies. Yield farming calculators can estimate returns by factoring in capital supplied, fees earned, and token rewards. The future of yield farming is evolving toward more sustainable models, integrating AI-driven strategies, regulatory shifts, and crosschain innovations.