What is “yield farming” and how can you make money from it?

Yield Farming

Yield farming is a trend we constantly hear about, especially in 2021. Maybe it’s because of this that yield farming is impossible to pass by, and many circles have very extreme opinions about it. So what does this mysterious phrase mean, and can it bring you any value?  We answer these questions, as well as others, right here in this article.

What is yield farming? 

Imagine the following situation (which you probably know from your own life): you deposit a certain amount of money in your savings account, and earn interest on it. Not many people think about it, but another way of putting money in the bank is to lend it to the bank, right? Well! Who says you can’t do the same with cryptocurrencies?

That, in its essence, is what “yield farming” is, which is often also called “liquidity harvesting”. By doing “yield farming”, you are essentially lending out your cryptocurrency assets, earning interest on a certain amount of the loan. Thus, you can think of “liquidity harvesting” as a long-term investment strategy.

So how does the title “yield farming” work?

To begin with, you need to ask yourself one question: do you know what dApps are? Decentralized applications, or dApps (decentralized apps), are services that run without central control. Their source code is open and freely available, and they run not on a single central server, but on a peer-to-peer network that is based on a particular blockchain (usually the Ethereum blockchain, but not always). A decentralized app also has a consensus mechanism, and is also often based on smart contracts, so that, as we mentioned – it doesn’t need to have a central authority controlling its operation. To the end user, a dApp will look just like an ordinary application – its interface is no different from the interface of applications we use every day. 

Now that we know what dApps are, we can go directly to how “yield farming” works. In its most basic version, you lend your digital assets, such as DAI tokens or BTC, through a decentralized application (for example, the Compound app) to end users, namely borrowers. Borrowers use borrowed tokens very often to speculate on the price, however, that is not what this article is about. Applications such as Compound allow lenders to earn interest on the amount borrowed. 

Is there profit to be made from “yield farming”?

Sounds great, doesn’t it? Absolutely! However, you should also remember that yield farming is still new on the market, just like cryptocurrencies. And while you can gain a lot from them, you can also lose a lot. That’s why every investment should be supported by hard evidence of a possible return, as well as research – which we encourage every reader to do.

DisclaimerBlockbulletin does not take accountability of investments based on the information of the website. We highly advice readers to make extensive research prior to any invest

Share this post

More Guides

It seems we can't find what you're looking for.

Latest News


XRP outperforms Bitcoin and Ethereum

In the past week, XRP decisively outperformed its main rivals, Bitcoin (BTC) and Ethereum (ETH), in terms of capital flows. Moreover, it recorded an impressive $2.7 million…

Solana and Avalanche on the eye of investment funds

Two alternative coins, Solana (SOL) and Avalanche (AVAX), are gaining increasing interest and are successively attracting the attention of investment funds. Although bitcoin (BTC) remains the main…
All articles loaded
No more articles to load


All articles loaded
No more articles to load

Knowledge Base

How to open and use Exodus wallet

The market offers many tools for storing crypto assets. In the article under the title “Cryptocurrency wallets” we explained several tools worthy of attention. One…

Cryptocurrency wallets

We talked about security when trading crypto assets in an article titled “Online security“. We also mentioned how important it is to have an external…

Cryptocurrency hardware wallets

From the article titled “Cryptocurrency wallets” you learned about the different types of wallets. They were briefly characterized there. Let’s now take a closer look…

Which cryptocurrency Brokers to use

In the article “Where to Buy Cryptocurrencies (Exchanges)“, we introduced you to which exchange platforms you can purchase cryptocurrencies on. But you probably know that…

Which cryptocurrency Exchanges to use

In our article titled “Cryptocurrency Trading”, we explained that you can buy or trade cryptocurrencies from both exchanges and brokers. This time we will look…

What is a decentralized exchange DEX?

A Decentralized Exchange, or DEX for short, is nothing more than an exchange without a central regulatory body. So how does a decentralized exchange differ…

Trading cryptocurrency

In the cryptocurrency market, you face many opportunities to invest in cryptocurrency or buy or sell cryptocurrency. If you want to buy cryptocurrency to invest…

Cryptocurrency taxes in Europe

Cryptocurrencies are gaining popularity all the time and are slowly becoming a widely accepted means of payment. As more and more people are interested in…

Online security for cryptocurrency

When trading on cryptocurrency exchanges, we want to feel that our funds are fully protected. You’ve probably heard more than once about the losses traders…

Leveraged trading

The cryptocurrency market moves quite fast and offers the public the opportunity to make a lot of money in a short period of time. Nevertheless,…
All articles loaded
No more articles to load