Yield farming is also known as liquidity mining.  It is a way to generate rewards with cryptocurrency holdings in liquidity pools. In simple terms, cryptocurrencies are locked up for getting rewards. In some sense, yield farming is parallel to staking.  Yield Farming is staking locking and lending crypto assets to generate high returns or rewards.

When you invest their value in banks get minimal rewards. Those who are investing in Defi protocols are able to make 6% or even more when they lock in their funds in liquidity pools.  However, there will be instances when the value of the tokens can even fall down by 20%. Those who have that kind of tolerance can venture in to their next crypto investment.

Those who have been investing in Bitcoin have been diversifying to Altcoins impressed by the concept of Yield Farming. DeFi protocols are for those who have a clear knowledge about cryptocurrency.

Comparing to traditional concepts Yield on a Bond or a Dividend can be called an equivalent in Yield Farming.  If is important for investors to look in to the fundamentals of the project.  It is not good to invest by merely looking at the yield of the project.

The percentage yield displayed will be for an annual APY.  And it will be high.  However, if you invest for just a short period of time you might not see an attractive APY. It is only when the funds are locked full time users will be able to get the full benefit.

A regular bank takes deposit from customer and pays 1% interest.  Then they loan the same amount to another customer charging 5% in interest. A decentralized protocol will do the same thing but using a “smart contract” in the middle to bring down cost to increase efficiency.  The investors are paid in “rewards”, which is comparable to the yield depending on the project.

Those who are investing should pick the coins that they understand and are sure of the long-term value. Despite the recent bearish trend in the cryptocurrency market the interest in Defi has not gone down.

There are lot of DeFi tokens you can study to invest in for yield farming.  They are Uniswap, ChainLink, Wrapped Bitcoin, Dai, Aave, PancakeSwap, Maker, Avalanche (AVAX), Terra (LUNA), ThorChain, Compound, SushiSwap, Synthetix, Bakery Token, UMA, Fantom, Ren, ren BTC and many more.

There are literally endless choices. There are some pools where traders bet 10X and it is not for beginners suitable for sophisticated traders.