What is Yield Farming?
Yield farming, also known as liquidity mining, is a lucrative practice in the cryptocurrency space where users provide liquidity to decentralized finance (DeFi) protocols in exchange for rewards. By locking up their crypto assets in a smart contract, users facilitate trading on decentralized exchanges or lending platforms, earning additional tokens or a percentage of transaction fees.
Example: One provides liquidity to a DeFi protocol by locking up their Ethereum, earning 5% annual interest in the form of additional tokens. This passive income stream allows them to grow their crypto wealth without actively trading.
Yield farming offers a unique opportunity to earn passive income and contribute to the DeFi ecosystem. However, it's crucial to carefully assess the risks and rewards associated with each protocol to ensure a successful harvest.
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