Learn Concept: Understanding DeFi and Yield Farming

By: Eliza Bennet

Decentralized Finance, frequently known as DeFi, is a blockchain-based form of finance that doesn't rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments. Instead, it utilizes smart contracts on blockchains, with Ethereum being the most common. Yield farming, also known as liquidity mining, is a way to generate rewards with cryptocurrency holdings. It involves lending out cryptocurrencies in exchange for fees in the form of interest and rewards.

The interest usually varies based on the demand of the cryptocurrency. The greater the demand, the more interest a liquidity provider earns. In certain situations, this interest rate can be exceptionally high, reaching several hundred percent per year.