- Yield farming involves lending or staking cryptocurrency in exchange for interest and other rewards.
- Yield farmers measure their returns in terms of annual percentage yields (APY).
- While potentially profitable, yield farming is also incredibly risky.
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Yield farming is a means of earning interest on your cryptocurrency, similar to how you’d earn interest on any money in your savings account. And similarly to depositing money in a bank, yield farming involves locking up your cryptocurrency, called “staking,” for a period of time in exchange for interest or other rewards, such as more cryptocurrency.
“When traditional loans are made through banks, the amount lent out is paid back with interest,” explains Daniel R. Hill, CFP, AIF and president of Hill Wealth Strategies. “With yield farming, the concept is the same: cryptocurrency that would normally just be sitting in an account is instead lent out in order to generate returns.”
Since yield farming began in 2020, yield farmers have earned returns in the form of annual percentage yields (APY) that can reach triple digits. But this potential return comes at high risk, with the protocols and coins earned subject to extreme