✅ Master Yield Farming Fundamentals
Understand liquidity pools, APY strategies, and risk management
Your Progress
0 / 5 completed🎯 Key Takeaways
You've learned the fundamentals of yield farming, from liquidity pools to risk management. Here's a summary of essential concepts to remember.
🌾
Core Concepts
Liquidity Pools
Smart contracts holding token pairs using x × y = k formula for automated trading
LP Tokens
Represent your share of the pool. Burn to withdraw liquidity + earned fees
Yield Sources
Trading fees (0.25-0.3%) + protocol token rewards + auto-compounding
🎯
Strategies
•Single-Asset: 5-15% APY, no IL, safest option
•LP Farming: 20-100% APY, IL risk, active management
•Auto-Compound: 30-150% APY, hands-off, vault fees
•APY vs APR: APY includes compounding effects
⚠️
Risk Management
•Smart Contract Risk: Use audited protocols only
•Impermanent Loss: Occurs when prices diverge
•Rug Pulls: Avoid anonymous teams, check locked liquidity
•Diversification: Never put all funds in one farm
💡
Best Practices
•Start Small: Test with amounts you can afford to lose
•DYOR: Research team, audits, TVL, tokenomics
•Take Profits: Regularly convert rewards to stables
•Use L2s: Polygon, Arbitrum for lower gas fees
📝 Knowledge Check Quiz
Test your understanding of yield farming. You need 3/5 correct answers to pass.
1
What is the main source of yield in liquidity pool farming?
2
What does APY account for that APR does not?
3
When does impermanent loss occur?
4
Which farming strategy has the lowest risk of impermanent loss?
5