What is Crypto Farming and How Do You Make Money with It?

Crypto farming, also known as yield farming, involves staking or lending digital assets to earn additional cryptocurrency. Protocols encourage participants, known as liquidity providers (LPs), to lock tokens in smart-contract pools. Rewards may come from a share of trading fees or interest and appear as an annual percentage yield (APY). When more capital flows into a pool, each participant’s share of the rewards falls because the total payout spreads across a larger base. Many DeFi projects rely on this mechanism to attract the liquidity that keeps their platforms functional.

How yield farming in crypto works

The crypto farming process differs from protocol to protocol, but most share a core structure. Liquidity providers deposit cryptocurrency in a DeFi application, which locks crypto in a smart contract programmed to reward LPs when they fulfill certain conditions.

Generally, the yield farming process works as follows:

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• Select a DeFi service that supports the assets you hold
• After connecting a Web3 wallet, deposit two compatible tokens into a liquidity pool.
• The yield farming protocol issues liquidity provider tokens that represent a position.
• Stake these LP tokens on the same platform or move them to another application to chase a second layer of returns.
• Claim newly minted rewards directly to a crypto wallet and decide whether to reinvest them or realize gains.
• To exit, unstake the LP tokens and redeem the original deposit plus any accumulated fees.

Calculating crypto farming rewards

Crypto farming rewards are either in annual percentage yield or annual percentage rate (APR). APY includes compounded earnings while APR only shows simple interest.

Several factors shape real-world results. Heavy trading in a pool generates more fees for providers, while governance token incentives can increase overall yields. By contrast, impermanent loss and platform charges can erode profits. Many participants turn to online crypto farming yield calculators that track pool statistics and feed live data into return projections.

Downsides of crypto farming

Yield farming can appear to be a straightforward path to profit, but it carries several risks. Understanding these risks in decentralized finance helps protect capital.

Crypto price volatility

New tokens with limited liquidity can experience significant price fluctuations. Since crypto farmers often lock assets for set periods, there is a chance that during that lock, the market may fall and the user cannot exit.

Drained liquidity pools

Liquidity changes as users add or remove funds. When liquidity falls, slippage (the difference between the expected price and the executed price) grows, and sellers get less value. Most exchanges allow traders to set slippage limits, yet extreme shortages can still cause unexpected losses. Lock-up periods in crypto farming can exacerbate this problem because farmers are unable to react quickly.

Impermanent loss

Impermanent loss is the difference in crypto price held in a wallet and crypto held by an automated market maker. Impermanent loss happens because AAMs keep token pairs balanced. When the prices of the tokens in a liquidity pool move sharply after a participant provides liquidity, the protocol may automatically buy cheaper tokens and sell the more expensive ones. Rebalancing instances like this can result in a loss for crypto farmers.

Shifting conditions and strategies

Payouts in yield farming adjust frequently. A liquidity pool with attractive returns today may cut rewards tomorrow. By the time the lock-up ends, other pools may offer higher yields. Monitoring reward schedules of various pools and adapting strategies demands constant attention.

Rug pulls and hacks

Rug pulls occur when fraudsters launch a token, hype it, and then exit the project once enough buyers arrive. Rug pullers often sell the tokens in liquidity pools, which drains the pool and leaves the token worthless.

Smart-contract code can also hide flaws that attackers exploit. For example, the Yam protocol raised more than 400 million dollars before a bug froze funds. Harvest.Finance also lost more than 20 million dollars in October 2020 through a liquidity exploit.

How does crypto yield farming differ from liquidity farming?

Yield farming and liquidity farming require deposits into a liquidity pool, yet they reward participants differently. Yield farming pays back deposited crypto with interest that compounds over time, often quoted as APY. Liquidity mining distributes governance tokens to LPs. These tokens grant voting rights and sometimes additional value if secondary markets grow around the protocol. These governance tokens can be traded on both centralized and decentralized exchanges.

How does crypto yield farming differ from crypto staking?

Crypto staking secures a proof-of-stake network and pays predictable rewards. After delegating or locking coins, you rarely need further action. Yield farming provides liquidity to decentralized DEXs or lending protocols, and it demands ongoing attention because rates vary across pools and new strategies emerge daily. Returns in farming can exceed staking payouts, yet so do the associated risks.

Top crypto farming protocols

Yield farmers often utilize a variety of DeFi platforms to optimize returns on their staked funds. These platforms offer variations of incentivized lending and borrowing from liquidity pools.

Aave

Aave offers non-custodial lending markets where users supply assets, earn interest in AAVE tokens, and may borrow against their collateral. As of June 2025, users can earn up to an 8% Annual Percentage Yield (APY) for lending on AAVE.

Uniswap

Uniswap is a popular DEX that enables token swaps through automated market makers. Liquidity providers stake equal values of token pairs and receive trading fees along with UNI governance tokens. LPs can earn up to 32% APR on the platform.

SushiSwap

SushiSwap emerged as a Uniswap fork and expanded into multi-chain markets, offering leverage products and a launchpad, while rewarding users with SUSHI. Yield farmers can earn up to 79% APR on SushiSwap for xSUSHI/USDC pairs.

PancakeSwap

PancakeSwap serves the Binance Smart Chain (BSC) community with gamified features, including lotteries and NFT collectibles, while distributing CAKE to its liquidity providers. APRs can go as high as 18% on Syrup Pools.

‍Curve DAO

Curve operates as a decentralized exchange that specializes in stablecoin trading and low-slippage swaps. The platform’s native token, CRV, serves as a governance and staking token. Users who lock CRV in the Curve DAO receive veCRV, which boosts their share of trading fees and earns them extra incentives. Base APY can be as high as 7% on Curve liquidity pools.