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Trends in Yield Farming

Many factors drive DeFi and yield farming to another height in 2021, and we will go through the drivers in the next section.

Aug 24, 2021

Yield farming, also referred to as liquidity mining, is a way to generate passive rewards with cryptocurrency holdings. Many factors drive DeFi and yield farming to another height in 2021, and we will go through the drivers in the next section.

Key Takeaways

  • Yield farming, also referred to as liquidity mining, is a way to generate passive rewards with cryptocurrency holdings. In May, Google Trends of DeFi peaked, and the TVL also tapped all-time high of $86 billion.
  • We concluded that the reasons for yield framing regaining popularity are the launch of new blockchains, layer 2 solutions on Ethereum, the evolution of autonomous market marker (AMM), and the development of yield aggregators.
  • Regarding TVL, the more popular blockchain networks other than Ethereum for DeFi were Polygon and BSC; and the most popular layer 2 solution was ZK-Rollups.
  • The general yield formula is illustrated and the yield for specific liquidity pool under some representative protocols were calculated for demonstrative purpose.
  • Although yield farming provides attractive yields by just depositing the token to protocols. However, it is not a risk-free game and investors should bear in mind the potential risks, including impermanent loss and smart contract risk.

Read the full PDF version of the Trends in Yield Farming here.

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Yield Farming

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