Yield Farming Explained
Yield Farming is one of the hottest and most innovative activities in DeFi.
The easiest way to farm yields is to lend tokens such as ETH, BTC or stable coins to DeFi lending platforms or liquidity pools. Yield farming helps DeFi platforms attract users and funds and therefore create greater liquidity to facilitate trading.
DeFi lending platforms like Compound pay interest in the form of the token that was deposited. For example, if you deposit BAT, you receive interest in BAT. In addition, and to incentivize deposits, lending protocols like Compound reward their users with governance tokens ($COMP). These governance tokens can be staked, or sold on DEXs (Decentralised exchanges). Also, most governance tokens accrue benefits to the holders such as voting rights and/or a piece of transaction fees.
Decentralized lending, and the liquidity it has aggregated for different protocols, is a lynchpin of the nascent and growing DeFi ecosystem.