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What Is Yield Farming?

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Yield farming allows you the opportunity to lock up or invest your coins into a crypto market and in turn, earn rewards. So basically, cryptocurrency that would normally just be sitting in an account is instead lent out in order to generate returns.

This process is a lot like putting money in a savings account. When you put money in a savings account, the bank puts this money into a “pool” that allows customers to borrow from this money. Your reward for contributing to the “pool” is interest.

In crypto, a loan is held in a smart contract. When the borrower pays back the loan you earn interest. Yield farmers have earned returns in the form of annual percentage yields (APY) that can reach triple digits. But this potential return comes at high risk, with the protocols and coins earned subject to extreme volatility. However, The rewards you earn can be higher than traditional investments.