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In essence, yield farming is the implementation of different strategies due to which cryptocurrency holders make more crypto.
Among common ways of capital raising are lending the funds to other users, borrowing, moving funds over various DeFi protocols, providing liquidity, and getting rewards. DeFi yield farming platforms are based on blockchain technology and smart contracts.
Among popular protocols for generating yield are Compound, Uniswap, Aave, Maker DAO, Yearn.finance, PancakeSwap, and Venus.
Besides earning interest, the protocols allow lenders and borrowers to get governance tokens like COMP and CAKE and then sell them on the open market.
Yield farming protocols are mainly focused on smart contracts that are deployed on blockchains. They implement various components such as automated money markets and liquidity pools. So, liquidity providers can deposit their assets into a liquidity pool, while other users can swap tokens or get loans. For the activities, users pay fees, which are distributed between liquidity providers and help them earn rewards.
AMMs are algorithms that calculate the prices and interest rates on a platform based on the liquidity amount held within liquidity pools.
The amount of crypto assets staked in a certain protocol through smart contracts is called TVL. According to data provided by DeFi Pulse, currently, the TVL of the DeFi market stands at over 82 B.