Yield Farming Uses Lending, Trading Fees and Token Rewards to Generate Returns

Yield farming places crypto assets in decentralized finance (DeFi) strategies that may earn lending interest, trading fees or token rewards, but rates and risks differ by strategy. The term covers several activities. A user might supply one asset to a lending market or deposit a pair of assets in a trading pool. Some vaults collect rewards, exchange them for the vault’s underlying asset and deposit them again. Reinvestment changes how returns accumulate; it does not create a separate source of earnings. In a lending market, interest is tied to a supply rate. On Aave, supply rates can change with pool utilization and governance parameters. Pool utilization reflects how much of the supplied assets are in use.

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