What is Yield Farming? Explained Simply (2025 Guide)
Learn how yield farming works in DeFi — from liquidity pools to APY rewards, risks like impermanent loss, and how to farm safely in 2025.
Hey, it’s Lanzo 👋
Ever heard someone say they’re “farming yields” in crypto and wondered what that means?
Don’t worry — it’s simpler than it sounds.
In this guide, you’ll learn:
- What yield farming is and how it works
- The difference between staking and farming
- What APY means (and how it’s calculated)
- Risks like impermanent loss and rug pulls
- How to find safe DeFi platforms in 2025
- Tools and wallets for earning yield securely
Let’s dig into the world of DeFi farming 👇
What Is Yield Farming? 🌾
Yield farming means earning rewards (usually in crypto) by providing liquidity to DeFi protocols.
In other words — you’re lending your crypto so others can trade or borrow it, and you earn a share of the fees and rewards.
Imagine a DeFi exchange like Uniswap or PancakeSwap.
When users trade, liquidity providers (LPs) earn a small cut of each trade — often distributed daily or weekly.
✅ You earn APY rewards
❌ But your crypto gets locked in a pool and exposed to market movements.
How Yield Farming Works ⚙️
Here’s a simple breakdown:
- You deposit two tokens into a liquidity pool (for example, ETH + USDC).
- The pool enables others to trade between those tokens.
- You receive LP tokens that represent your share of the pool.
- You can then stake those LP tokens in a farm to earn extra rewards (often in the platform’s native token).
So you earn two sources of income:
- Trading fees (from swaps)
- Farming rewards (extra tokens)
💡 Lanzo Tip: Yield farming = liquidity + staking. You provide liquidity and then stake the proof of it.
What Is APY and How Is It Calculated? 📈
APY (Annual Percentage Yield) shows how much you could earn in a year — including compounding.
Example:
- Pool pays up to 40% APY
- You stake $1,000
- After a year → up to ~ $1,400 (if rewards stay constant)
But remember:
Crypto yields fluctuate based on trading volume, token price, and protocol incentives.
| Platform | Typical APY Range | Notes |
|---|---|---|
| Bybit Earn | 5–15% | Low-risk, centralized platform |
| Aave / Compound | 3–8% | Lending-based yields |
| Uniswap / PancakeSwap | 10–30% | Liquidity farming rewards |
| Curve / Yearn | 10–40% | Stablecoin-focused strategies |
⚠️ Lanzo Warning: Don’t chase the highest APY blindly — the higher the reward, the higher the risk.
Farming vs Staking 🌿
Many people confuse staking with yield farming — but they’re different.
| Feature | Staking | Yield Farming |
|---|---|---|
| What you do | Lock tokens to secure a network | Provide liquidity to earn fees |
| Risk level | Low–medium | Medium–high |
| Main reward | Block or validator rewards | Fees + extra tokens |
| Examples | ETH staking, ADA staking | Uniswap, SushiSwap, Curve |
| Flexibility | Usually fixed | Often flexible pools |
Understanding Impermanent Loss ⚖️
One of the most misunderstood risks in yield farming is impermanent loss.
It happens when one of the two tokens in your liquidity pair changes in price.
For example:
- You add ETH + USDC to a pool when ETH = $2,000
- ETH doubles to $4,000
- The pool automatically rebalances, so you end up with less ETH
Even though your USD value might rise, you’d have more profit by simply holding ETH.
It’s called “impermanent” because the loss can reverse if prices return to the original ratio — but in practice, that’s rare.
⚡ Lanzo Tip: To minimize impermanent loss, farm stablecoin pairs (e.g. USDC/DAI or RLUSD/USDT).
Popular Yield Farming Platforms in 2025 🧩
| Platform | Type | Pros | Cons |
|---|---|---|---|
| Bybit Earn | Centralized | Secure, simple UI, flexible APY | Limited DeFi options |
| Uniswap V3 | Decentralized | Deep liquidity, trusted | Impermanent loss possible |
| Curve Finance | Stablecoins | Low risk, steady yield | Requires DeFi knowledge |
| PancakeSwap | BNB Chain | High rewards, gamified | Higher volatility |
| Aave / Compound | Lending DeFi | Proven protocols | APY can drop quickly |
How to Start Yield Farming (Step-by-Step) 🪴
- Choose a platform — start with trusted names like Bybit, Curve, or Aave.
- Connect your wallet — use MetaMask or Ledger Live for DeFi access.
- Deposit tokens — supply equal value of both coins in the pair.
- Confirm liquidity position — receive LP tokens.
- Stake LP tokens — earn additional rewards.
- Monitor APY and withdraw — check for changes weekly.
Related: What Is a DeFi Wallet?
Managing Risks in Yield Farming 🛡️
Yield farming can be rewarding — but comes with risks:
| Risk | Description | Prevention |
|---|---|---|
| Smart Contract Risk | Bugs or exploits in protocol code | Use audited platforms |
| Impermanent Loss | Value shifts in token pairs | Choose stablecoin pools |
| Rug Pulls | Developers remove liquidity | Stick to verified, trusted platforms |
| APY Volatility | Rewards drop over time | Diversify your farms |
| Gas Fees | Expensive on Ethereum | Try Solana, Arbitrum, or BNB Chain |
💡 Lanzo Tip: Never farm with funds you can’t afford to lose — start small and test each protocol’s withdrawal process first.
Example: Farming USDC/DAI Pool 💸
Let’s say you deposit:
- $1,000 USDC
- $1,000 DAI
You earn:
- 5% APY in fees
- 10% in governance token rewards
After one year, your balance could be worth $2,300 (minus network fees).
Stablecoin pools reduce volatility and are ideal for beginner farmers.
Tools to Track Your Yield 📊
Managing multiple farms can get messy — so tracking tools are essential.
- DeBank — dashboard for DeFi positions
- Zapper.fi — multi-chain portfolio overview
- CoinLedger — syncs your wallets to generate tax reports
- Ledger Live — see your DeFi balances directly from your hardware wallet
TL;DR 📌
- Yield farming = providing liquidity + earning rewards.
- APY depends on platform volume and reward token price.
- Watch for impermanent loss and scams.
- Stablecoin pairs are safest for beginners.
- Use tools like CoinLedger and Ledger Gen5 for security.
- Start small and learn how liquidity works before scaling up.
FAQ
Yes — especially for stablecoin and blue-chip DeFi pools with sustainable rewards. Avoid overly high APYs.
Farm Smart — Not Hard 🌱
Bybit Earn — Simple Yield for Crypto Holders
Earn up to 8% APY on stablecoins or 4% on Ethereum through Bybit Earn’s trusted platform.
This is an affiliate link. If you buy, Lanzo may earn a commission at no extra cost to you.
Ledger Nano™ Gen5 — Secure Your DeFi Funds
The EAL6+ CL7 certified hardware wallet designed for staking and yield farming safely.
This is an affiliate link. If you buy, Lanzo may earn a commission at no extra cost to you.
NGRAVE ZERO — Ultimate Cold Wallet for DeFi
Featuring an EAL7 CL7-certified chip and full offline design — perfect for large DeFi portfolios.
This is an affiliate link. If you buy, Lanzo may earn a commission at no extra cost to you.
CoinLedger — Track Your Farming & File Taxes
Automatically import yield rewards and generate tax reports in minutes. Use code **CRYPTOTAX10** for 10% off.
This is an affiliate link. If you buy, Lanzo may earn a commission at no extra cost to you.
⚡ Lanzo Tip: The best farmers don’t chase APY — they understand liquidity, risk, and security. Master those, and yield farming becomes your passive income stream.
⚠️ This content is for educational purposes only and does not constitute financial advice.
(This post contains affiliate links — supporting Lanzo at no extra cost to you.)
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