Is Yield Farming Legit?

Yield farming is a potentially profitable DeFi investment strategy that can generate profits on investments.

Marcel Deer
By Marcel Deer

Published April 3, 2022.

Yield farming is a DeFi investment strategy in which individuals lend or stake crypto assets to receive rewards. Generating yield farming returns and rewards is the ultimate goal.

Benefits of Yield Farming

Yield farming offers new strategies for crypto-asset holders to earn handsome returns on their cryptocurrency, much higher than any traditional bank would offer. It also provides high profits compared to most conventional investment channels.

Compound yield farming is an open-source protocol designed for developers that utilize algorithmic and autonomous interest rate protocols. This determines the rate at which farmers earn on staked coins.

Yield farmers can earn from token rewards, interest, transaction fees, and price appreciation.

Some of the other benefits of yield farming include:

  • Regarded as a generally safe practice
  • Allows farmers to earn rewards
  • A fantastic way to earn passive income

Risks of Yield Farming

While yield farming can be a great way to earn passive income, some risks are also involved. Such as:

  • Liquidation Risk
  • Smart Contract Risks
  • Unfairness
  • Scams
  • Gas Rates [1]
  • Bugs in Code [2]
  • Price Risks

Some investors may be displeased by the idea of rates and risks and rapid price swings that occur within the market.

Is Yield Farming Worth the Risk?

Yield farming is high-risk but can also be a high reward strategy, leading to high returns. You get out of yield farming what you put into it. If you have many assets to contribute and are willing to learn the ins and outs of yield farming, it may be a great choice.

Due to impermanent loss and volatility, some won't take the risk. Others question whether or not yield farming is a pyramid scheme, and the answer to this question is no. Protocols and decentralized exchanges are generating value and are not a scheme.