Definition
Yield farming is a concept in DeFi where participants commit their digital assets to smart contract-based protocols in order to generate yield. The returns typically come from a mix of protocol incentives, trading fees, and interest-like payments distributed to those providing capital. As a concept, it describes the practice of systematically directing assets to different on-chain opportunities to capture these rewards.
Protocols such as Aave and Maker can be part of yield farming strategies when users supply collateral or liquidity in exchange for protocol-defined returns. In many cases, yield farming is closely tied to liquidity pool mechanisms, where users deposit tokens into shared pools that power decentralized financial services. The core idea is that users are compensated for contributing capital that underpins DeFi market activity.
Context and Usage
Yield farming emerged as a defining concept of DeFi, describing how token incentives and fee sharing attract capital into decentralized protocols. It is often associated with liquidity pool participation, lending markets, and other on-chain arrangements that algorithmically distribute rewards to asset providers. The term is conceptual rather than tied to a single platform, and it can encompass activity across multiple protocols and chains.
Some advanced yield farming approaches may involve stacking rewards from different DeFi protocols or integrating newer systems such as EigenLayer into broader capital allocation strategies. Regardless of the specific platform, yield farming refers to the overarching practice of using programmable financial primitives to generate on-chain yield from idle or actively managed crypto assets.