Definition ∞ A Yield Farming Protocol is a decentralized finance (DeFi) application that enables users to deposit or lend their cryptocurrency assets to earn rewards. These rewards often come in the form of additional tokens, transaction fees, or a share of protocol revenue. These protocols automate strategies to maximize returns on deposited capital.
Context ∞ Yield farming protocols have played a pivotal role in the rapid expansion of the DeFi ecosystem, offering participants opportunities for passive income generation. However, they also present specific risks related to smart contract security, impermanent loss, and the sustainability of token rewards. They are a central component of DeFi liquidity.
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