Explore decentralized finance protocols and learn how to earn passive income through yield farming strategies
Decentralized Finance (DeFi) refers to financial services built on blockchain technology that operate without traditional intermediaries like banks. DeFi protocols use smart contracts to automate financial transactions, enabling users to lend, borrow, trade, and earn interest on their crypto assets.
Yield farming is a DeFi strategy where users provide liquidity to protocols in exchange for rewards, typically in the form of interest payments or governance tokens. It's one of the most popular ways to generate passive income in the crypto ecosystem.
Liquidity pools are collections of funds locked in smart contracts that facilitate trading on decentralized exchanges. Users who provide liquidity earn a share of trading fees proportional to their contribution.
APY represents the real rate of return earned on an investment, taking into account the effect of compounding interest. In DeFi, APYs can range from single digits to thousands of percent.
Staking involves locking your crypto assets in a protocol to help secure the network or provide liquidity. In return, you earn rewards, typically paid in the same token you're staking.
Impermanent loss occurs when the price of tokens in a liquidity pool changes compared to when you deposited them. The loss is "impermanent" because it can be recovered if prices return to their original levels.
The simplest yield farming strategy involves depositing a single token into a protocol to earn rewards. This is ideal for beginners as it doesn't expose you to impermanent loss.
Example:
Stake ETH on a platform like Lido to earn staking rewards (typically 3-5% APY) while maintaining liquidity through liquid staking tokens.
Provide equal values of two tokens to a liquidity pool on a DEX. You'll earn trading fees plus potential liquidity mining rewards, but face impermanent loss risk.
Example:
Provide ETH-USDC liquidity on Uniswap to earn 0.3% of all trades in that pair, plus potential UNI token rewards.
Use yield aggregator platforms that automatically move your funds between different protocols to maximize returns. These platforms handle the complexity of yield optimization for you.
Example:
Deposit stablecoins into Yearn Finance vaults, which automatically allocate funds to the highest-yielding strategies across multiple protocols.