DeFi Yield Farming: Risks and Rewards

Yield farming is the practice of staking or lending crypto assets to earn returns. These rewards come from trading fees, token incentives, or interest.

Users deposit token pairs into automated market maker pools. In return, they receive LP tokens that represent their share of the pool and allow them to earn fees.

Impermanent loss occurs when the value of your deposited tokens changes relative to simply holding them. The more volatile the pair, the greater the potential loss.

High APYs often include temporary incentives. Sustainable yield comes from trading fees and long-term demand, not inflated token emissions.