DeFi Education5 min read
Yield Farming 101: How to Earn Passive Income in DeFi
A comprehensive guide to yield farming strategies, risks, and best practices for earning returns on your crypto assets.
What Is Yield Farming?
Yield farming is the practice of putting crypto assets to work in DeFi protocols to earn returns. By depositing tokens into lending pools, liquidity pools, or staking contracts, users earn rewards in the form of interest, fees, or governance tokens.
Common Yield Farming Strategies
- Liquidity Provision: Deposit token pairs into DEX pools and earn trading fees
- Lending: Supply assets to lending protocols like Aave to earn interest
- Staking: Lock governance tokens to earn protocol rewards
- Vault Strategies: Use auto-compounding vaults that optimize yield across protocols
Evaluating Yields
APY (Annual Percentage Yield) accounts for compounding, while APR (Annual Percentage Rate) does not. Always check whether yields are paid in the native token (which may depreciate) or stablecoins.
Risk Management
- Smart contract risk: Only use audited protocols
- Impermanent loss: Understand the cost for LP positions
- Token price risk: High APY often comes from inflationary token rewards
- Rug pull risk: Research team reputation and TVL history
Getting Started
Start with established protocols on major chains. Platforms like Alkizen help you discover and access yield opportunities across 75+ chains from a single interface.