Yield farming allows investors to generate yield by placing funds or tokens in a decentralized application (dApp). Crypto wallets, DEXs, decentralized social media platforms, and other apps are examples of dApps.
Decentralized exchanges (DEXs) are commonly used by yield farmers to lend, borrow, or stake coins in order to generate interest and speculate on price movements. DeFi enables yield farming by using smart contracts, which are pieces of code that automate financial agreements between two or more people.

Yield farming is a decentralised finance (DeFi) strategy where investors lend or stake their cryptocurrency in liquidity pools to earn rewards. These pools are used by decentralised exchanges or lending platforms to facilitate trades and loans. In return for providing liquidity, investors receive interest, fees, or governance tokens. The rewards depend on factors like the platform’s demand, token value, and total liquidity. Yield farmers often move funds between platforms to find the best returns, a process known as “chasing yield.” However, yield farming carries risks, including smart contract bugs, impermanent loss, and market volatility. While it can generate high returns, successful yield farming requires technical knowledge, risk management, and awareness of rapidly changing DeFi conditions.