What Is Yield Farming? Top Yield Farming Platforms in 2025

Yield farming has been one of the hottest trends in crypto for over five years, but it still seems overly complex for many newcomers in crypto. While it can absolutely get complicated, the basics of yield farming are extremely simple. At its core, yield farming is just another way to make your crypto assets work for you. Sounds great, doesn’t it?

Instead of letting coins sit idle in your crypto wallet, you can lock them into decentralized finance (DeFi) platforms and earn passive income. It is a bit like earning yield from bank deposits or treasury notes, which is where the term got its name.

The main differences are that there are no centralized third parties like banks involved, and the risks and potential earnings are often significantly higher. Let’s dig deeper into the topic.

What Is Yield Farming?

Yield farming (also called liquidity mining) is a DeFi strategy where you lock up your cryptocurrency in protocols and earn rewards in the form of interest, trading fees, or governance tokens.

The idea of yield farming exploded in 2020 during what we now call the “DeFi summer.” The total value locked in DeFi grew from around $1 billion in June 2020 to over $15 billion by October 2020, which was largely driven by protocols like Compound, Yearn, and Aave, which used token rewards to incentivize liquidity providers.

During DeFi summer, yields skyrocketed to unprecedented levels as protocols competed with each other to secure users and deposits. Yearn vaults even broke 1000% APY at one point. For reference, a $1,000 deposit at 1,000% APY (assuming it is stable) would generate nearly $15,000 in a year. By the end of 2021, TVL shot up to over $240 billion, proving that yield farming would be a mainstay of the crypto industry.

How Does Yield Farming Work?

Yield farmers lend out their crypto assets as liquidity to a decentralized platform. The smart contracts on the blockchain do all the work, and they get rewards in return.

Let’s say you deposit stablecoins like USDC or DAI into a DeFi lending platform like Compound or Aave. Other users can borrow your crypto, and you earn interest on it. It’s pretty straightforward.

It gets more interesting when you join a liquidity pool.

For example, you can earn a share of the trading fees plus additional token rewards by pairing two tokens like ETH and USDT, and depositing them on a decentralized exchange (DEX) like Uniswap or Curve Finance. The rewards often come in the form of the platform’s native tokens, such as COMP on Compound or CRV on Curve (which you can either sell or reinvest). This is how APYs reached unbelievable levels in 2020 because protocols were able to essentially print money to pay depositors. This also explains why these high yields are so unstable.

Yield farming can be a great way to make passive income if you are holding crypto long-term. It is easily accessible, so anyone can participate, even if they don’t hold a lot of capital in crypto. However, yield farming comes with major risks such as price swings, impermanent loss, and smart contract vulnerabilities, to mention a few.

Yield Farming vs. Crypto Staking

Before we dive deep into yield farming, it helps to understand how this compares to another popular crypto income strategy: staking. Many people confuse the two since both involve locking up your assets to earn rewards, and both are considered forms of passive income in the crypto world.

However, the way these two work and the risks involved are quite different. Let’s take a closer look at this.

How are Yield Farming Returns Calculated?

When we talk about yield farming returns, there are two terms you must understand:

• APR (Annual Percentage Rate): Simple interest earned over a year without compounding. For example, 20% APR on a $1,000 investment yields exactly $200 in a year.
• APY (Annual Percentage Yield): This includes the effects of compounding (earning interest on your interest). With compounding interest, APY naturally exceeds APR. For instance, at 20% APR compounding daily, you’d earn around 22.13% APY, which translates to around $221.39 instead of $200 on your $1,000 investment.

In DeFi, the compounding periods can be very frequent, which can boost APY significantly. Compounding can automatically occur every day, hour, or even block.

Key Factors Affecting Yield Farming Returns

Four main key factors can affect your yield farming returns:

1. TVL (Total Value Locked)

A higher TVL generally means lower yields due to more competition.

2. Liquidity demand and volume

Pools with high trade volume generate more trading fees, which benefits liquidity providers (LPs).

3. Token inflation (rewards)

Many campaigns offer new tokens as incentives. This can boost early APY, but excessive token inflation can dilute long-term rewards.

4. Market volatility and impermanent loss

Price swings in LP pairs can reduce returns via impermanent loss, especially for more volatile crypto assets.

Impermanent Loss: How to Calculate It

Impermanent loss occurs when the price ratio of pooled tokens changes, reducing your returns compared to simply holding the tokens. It is called “impermanent” because it may reverse if the prices return to their initial ratio. It is absolutely essential to factor in the risks of impermanent loss whenever you’re considering depositing into a liquidity pool.

Here is how impermanent loss is calculated:

To calculate APY in addition to impermanent loss, you can use the CoinGecko calculator:

Main Ways to Farm Yield

There are three main ways to farm yield:

1. Lending platforms (Aave or Compound): You deposit assets (e.g., DAI, USDC), others borrow the assets, and you earn interest and sometimes bonus tokens.
2. Liquidity pools or decentralized exchanges (Uniswap, Curve): You provide a pair of tokens and earn a share of swap fees + incentives in native tokens.
3. Yield aggregators (Yearn.finance, Convex): These tools automatically move your assets across pools to chase the best yield and reinvest the profits with auto-compounding.

Top Five Yield Farming Platforms for 2025

To help you start with yield farming, we created a list of the top five yield farming platforms for 2025. Each of these platforms offers unique benefits.

1. Aave

Aave started as ETHLend in 2017 and rebranded to Aave in 2020, quickly becoming one of the leading decentralized lending and borrowing platforms in DeFi. Today, it allows users to lend crypto assets such as stablecoins, ETH, and altcoins and earn interest or borrow against collateral.

Aave supports several blockchains, including Ethereum, Polygon, Avalanche, Arbitrum, and Optimism, which provide users with flexible yield farming options. In early 2025, the platform launched V4, which introduced isolated pools to contain risk more effectively, as well as their “smart-rate” system that dynamically adjusts interest rates to maximize yields.

What It Offers in Yield Farming:

Yield farming on Aave involves depositing assets into lending pools, earning interest plus additional rewards in stkAAVE tokens (staked AAVE). Users can also borrow and mint GHO stablecoins against collateral.

Best for: Yield farmers who prefer stablecoin trading and advanced users using multi-chain features and flash loans.

Best features:

• Flash loans: Instant, uncollateralized loans executed within a single blockchain transaction for arbitrage and other complex strategies.
• Isolated pools and smart-rate: Risk-isolated lending pools and dynamically adjusting interest rates.
• Multi-token rewards: Earn interest, stkAAVE governance tokens, and GHO-related yield.
• Multi-chain support: Operates on Ethereum, Polygon, Arbitrum, Avalanche, and Optimism for reduced transaction fees and faster transactions.

2. Compound

Compound launched in 2018 and quickly grew into one of the leading DeFi platforms along with Aave. It lets users supply liquidity in crypto assets like stablecoins, Ethereum, and other tokens to earn interest while also borrowing assets against collateral.

Compound’s interest rates are algorithmically adjusted based on supply and demand, which makes lending more flexible and efficient. While it primarily runs on Ethereum, the platform remains a major platform of DeFi lending and yield farming.

What It Offers in Yield Farming:

Yield farming on compound means depositing assets to earn interest and receiving additional COMP token rewards as incentives (given both to borrowers and lenders). The COMP tokens can be claimed, staked, or sold.

Best for: Beginners or users seeking simple, reliable lending yields and those wanting to earn COMP governance tokens as rewards.

Best features:

• Algorithmic interest rates: Automatically adjusted based on market demand and supply.
• COMP Token rewards: Earned on lending and borrowing activities to incentivize participation.
• User-friendly interface: Simple and transparent, ideal for DeFi newcomers.
• Security: One of the most audited protocols in DeFi.

3. Curve DAO

Curve DAO is a decentralized exchange and automated market maker (AMM) designed specifically for stablecoin trading and low-slippage swaps between similar crypto assets. The platform was launched in early 2020 and is now known for its low fees and deep liquidity pools.

Real yield came a little early with this one @Lombard_Finance pic.twitter.com/1ktU7P0maf

— Curve Finance (@CurveFinance) June 13, 2025

What It Offers in Yield Farming:

Curve allows users to provide liquidity to stablecoin pools such as USDC, USDT, DAI, and others, earning trading fees plus CRV token rewards. The platform has a rather unique algorithm that minimizes impermanent loss and slippage, which makes it very attractive for stablecoin yield farmers looking for more predictable returns. Curve’s DAO governance token, CRV, can be locked for veCRV, granting voting power and additional rewards.

Best for: Users focused on stablecoin yield farming with lower risk and traders who prefer low-slippage swaps between stablecoins and wrapped tokens.

Best features:

• Low-slippage stablecoin swaps: Optimized AMM algorithm tailored for minimal price impact.
• CRV Token rewards: Distributed to liquidity providers.
• veCRV Voting Lock: Lock CRV tokens to gain governance power.
• High TVL and security: One of the largest DeFi protocols by total value locked.

4. Uniswap

Uniswap is one of the earliest and most popular decentralized exchanges and automated market makers, launched in 2018. It completely transformed DeFi by enabling trustless, permissionless token swaps without order books. Instead of order books, Uniswap relies on liquidity pools.

Uniswap operates primarily on Ethereum, but has expanded to Layer 2 and other chains. This gives users more opportunities to provide liquidity and earn fees, plus UNI governance tokens.

Uniswap’s recent versions, including V3 and V4, introduced concentrated liquidity, which allows LPs to specify price ranges.

What It Offers in Yield Farming:

Uniswap does not currently formally run a yield farming program that distributes additional token rewards like other DeFi protocols do. Instead, users earn trading fees by providing liquidity to pools. This means that when you supply tokens to a Uniswap pool, you get a share of the swap fees generated, which acts as your yield.

Previously, Uniswap offered UNI token liquidity mining rewards when the token launched in 2020, but that program is no longer active.

Best for: Users who want to earn fees by providing liquidity across many token pairs, and those comfortable managing impermanent loss risks that come with AMM pools.

Best features:

• Wide token support: Supports a large variety of ERC-20 tokens.
• Concentrated liquidity: Allows liquidity providers to allocate capital within custom price ranges.
• Fee earnings: Earn a portion of trading fees from the pools you provide liquidity to.

5. Yearn.Finance

Yearn Finance is a decentralized yield aggregator launched in 2020 by Andre Cronje. Its main idea is to automate yield farming by pooling user funds into optimized strategies across different DeFi platforms. In this way, the platform helps users maximize their returns without the need to manage positions themselves.

As of mid-2025, Yearn vaults support assets such as DAI, USDC, ETH, and more, with annual yields varying by vault and market conditions.

What It Offers in Yield Farming:

Unlike traditional lending and AMM platforms, Yearn doesn’t directly offer yield farming itself. Instead, it acts as a yield aggregator, which means that it automatically allocates your deposited funds into some of the highest-yielding strategies across other protocols like Aave, Compound, and Curve. Users deposit assets into Yearn’s vaults, where smart contracts execute the strategies in an automated process.

Best for: Users who want automated yield farming and those looking to diversify risk by exposure across different yield sources.

Best features:

• Automated strategies: Smart contracts execute complex yield farming strategies on your deposits.
• Wide asset support: Vaults cover many stablecoins, ETH, and other popular tokens.
• High potential earnings: Depending on the market and vault, yields can be considerably high.
• User-friendly interface: Simple to deposit and withdraw without having to manage each position manually.

What are the Pros and Cons of Yield Farming?

Now let’s consider the pros and cons of yield farming:

Pros of Yield Farming

• Potential for passive income by putting crypto to work
• Exposure to cutting-edge DeFi projects
• Helps diversify your crypto holdings across different tokens and platforms
• Automated tools allow compounding for faster growth

Cons of Yield Farming

• Impermanent loss can reduce your returns, especially with volatile tokens
• Smart contracts can have bugs and vulnerabilities
• Some protocols might be scams or rug pulls, which can cause loss of funds
• High gas fees on blockchains like Ethereum can eat into your profits

How to Get Started with Yield Farming

If you are new to yield farming, getting started can feel overwhelming. Thankfully, with the right setup and a little planning, you can start earning passive income from your crypto without learning overly complex strategies. We will now guide you through the essential first steps to follow.

1. Choose Your Assets

Start by deciding which tokens you wish to farm with.

• Stablecoins like USDC, DAI, and USDT generally come with lower risk and less price volatility and are ideal for beginners who want predictable income.
• Altcoins like ETH, AVAX, and ARB have more price volatility but often have higher potential yields.

Tip: If you are a beginner, you can start small and go with stablecoins before you are ready for bigger risks. This can give you time to test strategies with a fraction of your portfolio before you commit more funds.

2. Pick the Right Platform

Your choice of a yield farming platform matters as much as your choice of assets. When you choose a platform for farming, look for:

• Security audits: Check if the protocol has undergone professional, independent audits.
• Reputation: Is the protocol used by many? Are there frequent updates?
• Transparent teams: Public roadmaps and known developers help build trust.
• Good user experience: A confusing interface can easily lead to costly mistakes.

Tip: Use tools like DefiLlama to compare TVL, yields, and chains supported.

3. Use Dashboards and Calculators

Tracking your positions manually is hard, especially if you are a beginner. Dashboards can help a lot with this. Some examples are:

• Zapper.fi and DeBank: View all your DeFi investments in one place.
• YieldYak (for Avalanche) and Beefy: Auto-compound vaults and current APYs.
• Impermanent loss calculators

4. Track, Reinvest, and Harvest

Yield farming is not completely passive. You should still check in regularly. Here are some tips to follow:

• Claim rewards when it makes sense (consider gas fees)
• Reinvest or compound the rewards to grow faster (when gas fees are low)
• Stay updated on protocol changes, new offerings, and farm APRs

Tip: Compounding once a week or even once a month is often more cost-effective than every day due to gas fees.

5. Know When and How to Exit

You can’t just farm forever. Exit planning is as important as any of the steps above. That being said, here is what you should do to exit at the right time:

• Watch APYs: If they drop significantly, it may be worth it to find another pool.
• Monitor asset prices: Impermanent loss can turn into significant losses if the token crashes.
• Set profit goals: Know what you expect in return. Once you hit your goal, consider taking your profits.

Tip: Unstake rewards first, then withdraw liquidity to avoid missing earned tokens.

Risks of Yield Farming and How to Stay Safe

Like any investment, yield farming comes with its fair share of risks. In crypto, those risks can be technical, fast-moving, and oftentimes, even hidden.

The good news is that most of the yield farming risks can be managed with the right precautions. Let’s talk about the most common risks in yield farming and how you can avoid them.

Smart Contract Hacks

Smart contracts power DeFi protocols, but if there is a bug in the code, you can lose your funds in minutes or even seconds. Hacks and exploits have cost users millions, even on well-known platforms. For instance, in April 2023, the lending protocol Hundred Finance was exploited for over $7 million due to a price manipulation attack.

How to stay safe:

• Choose platforms that have passed multiple third-party audits.
• Check bug bounty programs. Many secure projects reward white-hat hackers for spotting flaws.
• Avoid unaudited and brand-new protocols unless you are ready to take high risks.
• Use sites like DeFiSafety and CertiK Leaderboard to check security scores and audits.

Rug Pulls and Scams

A rug pull happens when developers suddenly pull liquidity from the pool and disappear, basically stealing the funds of users. These are frequent in shady or newly launched platforms promising extremely high APYs.

For instance, the 2021 “AnubisDAO” rug pull drained $60 million within a single day of launch.

How to stay safe:

• Avoid anonymous teams and projects with no clear history or website.
• Do your own research. Look at token distribution, GitHub commits, and team credibility.
• Be wary of projects that offer unsustainably high APYs like 1000% daily returns.
• If it can’t explain how the yield is generated, you probably shouldn’t invest.

Impermanent Loss (IL)

Impermanent loss occurs when the price of tokens in a liquidity pool changes compared to when you deposited them. If the price gap grows too large, you could end up with fewer assets than if you simply held them.

How to stay safe:

• Stick to stablecoin-stablecoin pools for minimal IL.
• Use impermanent loss calculators before you deposit.
• Long-term farmers often mitigate IL with trading fees and yield farming rewards.

Gas Fees

High gas fees, especially on Ethereum Mainnet, can eat into your profits or even make small deposits unprofitable.

How to stay safe:

• Use Layer 2 solutions like Arbitrum, Optimism, or zkSync for lower gas fees.
• Perform transactions during off-peak hours, like nights and weekends.
• Use gas-tracking tools like Etherscan Gas Tracker

Compromised Wallets and Phishing Attacks

Protecting your private keys is critical in crypto. Many hacks happen not because of bad protocols but because of compromised wallets and phishing attacks.

How to stay safe:

• Use a hardware wallet like Ledger or Trezor for any serious crypto holdings.
• Consider DeFi insurance. You don’t need to insure every farm, but for high-value strategies, this can give you peace of mind.
• Never sign unknown or suspicious transactions. Always triple-check URLs.

Conclusion and Best Practices

Yield farming can be a powerful tool for growing your crypto portfolio. However, like anything in DeFi, it comes with both opportunity and high risks. The key is staying informed and cautious.

Smart farmers in 2025 combine strategy with discipline. They don’t chase every high APY or try every new platform. Instead, they focus on safety and sustainability and learn continuously.

The idea is to keep learning. DeFi changes incredibly fast, so always monitor protocols, join communities, and read audits. Finally, whenever you are testing something new, make sure you are safe. Consider hardware wallets and insurance to protect your funds from unexpected events.

FAQ

References

1. A Look Back at 2020, the Year of DeFi – Yield App
2. Harvest Finance is Now the Largest Aggregator in DeFi – PublishOx
3. Total Value Locked in DeFi – FinBold
4. Impermanent Loss Calculator – ChooseInvesting
5. Impermanent Loss and APY Calculator – CoinGecko
6. Aave Unveils V4 Protocol Overhaul – CoinTelegraph
7. What Is Uniswap V4 – Uniswap
8. Hundred Finance Hacker Moves Stolen Assets – CoinTelegraph
9. Public Bug Bounty List – BugCrowd
10. The Biggest Rug Pulls in Crypto History – Binance