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What is yield farming? How DeFi rewards work, and the risks

By SendPay Business · · 2 min read

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Yield farming means putting crypto into decentralised finance (DeFi) apps, usually as a lender or liquidity provider, to earn fees and reward tokens. Advertised returns can look high, but so are the risks, and nothing is guaranteed.

How it usually works

  • A user deposits crypto into a DeFi app, such as a lending pool or a trading pool.
  • The app uses those funds for loans or swaps and earns fees.
  • Depositors get a share of the fees, and sometimes extra reward tokens.
  • Some users move funds between apps to chase the highest rate.
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The main risks

Smart contracts can have bugs or be hacked, reward tokens can fall sharply in value, pools can suffer impermanent loss, and some projects turn out to be rug pulls. DeFi apps generally have no deposit protection.

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Rewards are not interest

Yields change constantly and often come from new token issuance rather than real income. A high advertised rate is not a promise of that return.

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Where SendPay fits

SendPay doesn't offer yield farming or any DeFi service. SendPay platforms let your customers buy, sell and hold crypto, held with regulated partners, alongside GBP, EUR and USD accounts and branded Visa cards.

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How it works

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Why sign up

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Questions people ask

What is impermanent loss?

See how a 50/50 pool compares with holding the two tokens.

Impermanent loss calculator →
What is DeFi?

Financial apps that run on blockchains without a bank in the middle.

What is DeFi? →
What is impermanent loss?

A loss liquidity providers can take when prices move.

Impermanent loss →
What is a rug pull?

A scam where a project's creators vanish with the funds.

What is a rug pull? →

Read next

Spotted a mistake or something out of date? and we'll fix it. How our guides are made

This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.