What is yield farming? A plain-English guide

How does yield farming work?

1. You deposit tokens into a smart contract, such as a lending market, a liquidity pool or a vault that automates a strategy.
2. You receive a receipt. This is often a token that represents your share of the pool, or a position recorded on the protocol.
3. The protocol pays you. The payment can be interest from borrowers, a share of trading fees, reward tokens, or a mix.
4. You withdraw by returning the receipt, if the pool has enough free funds to let you.

Some farmers leave funds in one place. Others move between protocols as rates change, which costs gas and fees each time and is where mistakes happen.

What pays a yield farming rate?

• Interest. Borrowers pay it to use the deposited asset.
• Trading fees. Traders pay them for swapping against a liquidity pool.
• Reward tokens. A protocol hands out its own token to attract deposits, a practice also called liquidity mining. This part is the most temporary: it moves with the token’s price and ends when the programme ends.

The rate shown is usually called an APY, and it is a quote for today. For how the parts are split and why that matters, read base APY vs reward APY. For how this differs from staking and lending, read staking vs lending vs pool yield.

What are the risks of yield farming?

• Smart contract risk. A bug or exploit can lose deposits, and audits do not remove that risk.
• Reward token risk. A rate paid mostly in a token can fall when the token’s price falls or the programme ends.
• Impermanent loss. In a pool of two different tokens, a price move between them can leave you with less than if you had held them. Try the impermanent loss calculator.
• Liquidity risk. In a small pool, or one where most funds are lent out, you may not be able to withdraw everything at once.
• Stablecoin risk. A stablecoin can trade below its peg, sometimes for a long time.
• Falling rates. As more people deposit, a fixed reward budget is shared more thinly, so rates tend to fall.
• Costs. Gas and fees on every deposit, move and withdrawal reduce what you keep: use the APY calculator to see whether a move pays for itself.
• Fake tokens and approvals. Signing an approval for the wrong contract can give it access to your tokens. Research never needs a signature.

No yield comes without risk, and none of it is insured. Only use money you can afford to lose.

How can you research a farm without taking those risks?

You can look before you act, and looking needs no wallet. On web3juice, search and filters need no account. The list shows each pool’s APY split into base and reward, its 30-day median and range, its size and how old the figure is. A free account opens a pool’s details and history and lets you set an alert when its rate or size changes.

• Research a yield without giving any app your keys
• How to check a pool’s historical APY
• Stablecoin yields, compared across DeFi

web3juice never holds funds, asks for keys or executes trades. If you decide to act, you do it on the protocol’s own site, with your own wallet.

Is yield farming the same as staking?

No. Staking helps run a blockchain and is paid by the chain’s rules. Yield farming is a wider term for using DeFi protocols for a payout, including lending and liquidity pools. Some products blur the line, so check what is paying the rate and what can go wrong, not just the name. The comparison is in staking vs lending vs pool yield.

Sources

• Aave documentation: Aave v3 overview, read on 23 October 2026
• web3juice: base APY vs reward APY, impermanent loss calculator and research without your keys

Research and monitoring only: web3juice never holds funds, asks for keys or executes trades. APYs change constantly and are not a promise of returns. Principal can be lost. Nothing on this page is financial advice.