Yield Farming ELI5:

Yield farming is a token distribution mechanism

just like block rewards for PoW in Bitcoin.

just like the Ethereum Presale (or any ICO./

It’s a unique new thing for two main reasons:

Rather than buy an ASIC to a search for new bitcoin blocks, you deposit assets.

The rules for distributing project tokens can be anything.

Some choices so far:

1) Add assets to the project’s own protocol to boost liquidity in the protocol (Compound, Curve, Balancer, MCDEX)/

2) Provide liquidity to a different protocol (uniswap) so traders of the project’s own tokens have less slippage. (mStable, Auctus, MCDEX)

3) Just stake tokens in a sterile canister. typically the Mintr contract from Synthetix. (YFI, YAM, Based)/

it is clearly new.

but is it better? jury is still out, but im thinking probably yes. we are seeing wide distributions that are very good for community bootstrapping. and some protocols are getting large, early liquidity bootstrapping, creating value for users./

I think the next phase of yield farming is in designing rules that best maximize the capital being attracted to get the tokens.

Early rulesets of type #1 have often led to large misallocations of capital chasing yield, and i think there is room for 10x improvement, at least./

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