Yield Farming

Yield farming -

What is yield farming?

Yield farming is a process that allows cryptocurrency holders to earn rewards on their

holdings. With yield farming, an investor deposits units of a cryptocurrency into a lending

protocol to earn interest from trading fees. Some users are also rewarded with additional

yields from the protocol’s governance token. 

Yield farming works in a similar way to bank loans. When the bank loans you money, you

pay back the loan with interest. Yield farming does the same, but this time, the banks are

crypto holders like yourself. Yield farming uses “idle cryptos” that would have otherwise been

wasting away in an exchange or hot wallet to provide liquidity in DeFi protocols like Uniswap

in exchange for returns.

In some sense, yield farming can be paralleled with staking. However, there’s a lot of

complexity going on in the background. In many cases, it works with users called liquidity

providers (LP) that add funds to liquidity pools.


Yield farming works with a liquidity provider and a liquidity pool (a smart contract filled with

cash) that powers a DeFi market. A liquidity provider is an investor who deposits funds into a

smart contract. The liquidity pool is a smart contract filled with cash. Yield farming functions

based on the automated market maker (AMM) model.


This model is popular on decentralized exchanges. AMM eliminates the conventional order

book, which contains all “buy” and “sell” orders on a cryptocurrency exchange. Instead of

stating the price that an asset is set to trade at, an AMM creates liquidity pools using smart

contracts. These pools execute trades based on predetermined algorithms.


The AMM model relies heavily on liquidity providers (LPs), who deposit funds into liquidity

pools. These pools are the bedrock of most DeFi marketplaces where users borrow, lend

and swap tokens. DeFi users pay trading fees to the marketplace; the marketplace shares

the fees with LPs based on their share of the pool’s liquidity. 


Take Compound, for instance. The protocol provides liquidity to borrowers who want to

borrow funds in cryptocurrencies. The Compound Finance system does this using smart

contracts on the Ethereum blockchain. LPs deposit funds into the liquidity pools. These

contracts serve as the matching engine for market participants. 


Once an interest rate for the loan has been agreed upon, the borrower gets the funds. In

exchange for their funds, LPs get Compound Finance’s native COMP tokens. They also get

a cut of the interest that the borrowers pay. Some of the most common DeFi-related

stablecoins include USDT, DAI, USDC and BUSD. Some protocols can also mint tokens,

which represent your deposited coins in the system. For instance, if you deposit ETH into

Compound Finance, you get cETH. If you deposit DAI, you get cDAI.


Yield Farming

1. Pancake Swap (CAKE):

PancakeSwap is a decentralized exchange for swapping BEP20 tokens on Binance Smart

Chain. PancakeSwap uses an automated market maker (AMM) model where users trade

against a liquidity pool. Such pools are filled with users’ funds. They deposit them into the

pool, receiving liquidity provider (or LP) tokens in return. They can use those tokens to

reclaim their share, plus a portion of the trading fees.

The LP tokens are called FLIP tokens. PancakeSwap also allows users to farm additional

tokens – CAKE and SYRUP. On the farm, users can deposit LP tokens, locking them up in a

process that rewards users with CAKE. Users can stake CAKE tokens to receive SYRUP,

which will have further functionality as governance tokens (and as tickets in a lotteries).


2. Aave:

Aave is an open source and non-custodial protocol enabling the creation of money markets.

Depositors can earn interest on deposits and borrow assets. Aave Protocol supports more

than 15 different assets, with a large selection of stablecoins.

Aave (which means “ghost” in Finnish) was originally known as ETHLend when it launched

in November 2017, but rebranded now to Aave. The migration from LEND to AAVE is the

first step in the Aavenomics. Migrating from LEND to AAVE token allows the users to

participate actively on the Aave Protocol governance and stake within the protocol Safety



3. Compound (COMP):

Compound (COMP) is an ERC-20 asset that powers the community governance of the

Compound protocol; COMP token-holders and their delegates debate, propose, and vote on

changes to the protocol.

By placing COMP directly into the hands of users and applications, an increasingly large

ecosystem will be able to upgrade the protocol, and will be incentivized to collectively

steward the protocol into the future with good governance.


4. SushiSwap (SUSHI):

SushiSwap is an automated market-making (AMM) decentralized exchange (DEX) currently

on the Ethereum blockchain. We are soon expanding our offerings with the BentoBox

lending platform.

SushiSwap is a community-run project, governed by the community vote for all major

changes to the protocol. Day-to-day operations, rebalancing of pools and ratios, business

strategy, and overall development is ultimately decided on by our Sushi Chef 0xMaki.


5. Curve DAO Token (CRV):

CRV is a governance token on the Curve platform with time-weighted voting and value

accrual mechanisms.


6. Synthetix Network Token (SNX):

Synthetix, formerly Havven, is a cryptoasset-backed network that enables the creation of on-

chain synthetic assets. The Synthetix platform enables the creation of on-chain synthetic

assets (Synths) that track the value of assets in the real world. Some examples of assets

that the platform supports are synthetic fiat currencies (sUSD, sAUD, sKRW, etc.), synthetic

commodities such as gold (sXAU), as well as more complex assets such as equity indices.


7. Bitcoin Standard Hashrate Token (BTCST):

Bitcoin Standard Hashrate Token aims to bring exchange-grade liquidity to Bitcoin mining

and solve the current problem of a limited number of exit options while participating in the

mining process.

Each BTCST is collateralized by 0.1 terahash per second of Bitcoin mining power. Users are

able to stake their BTCSTs and by doing so they can receive daily Bitcoin distributions

corresponding to the amount of mining power staked. No upper limit and no KYC required.


8. Reef:

Reef is a smart liquidity aggregator and yield engine that enables trading with access to

liquidity from both CEXs and DEXs while offering smart lending, borrowing, staking, mining

through AI driven personalized Reef Yield Engine.

What can you do with the Reef token?

Governance: vote on different proposals such as releasing new features and re-adjusting

certain parameters in the system

Protocol fees: pay fees for operations such as entering/exiting a the basket, reallocation,

rebalancing and other activities

Staking: stake into various pools to earn interests with preferred APR;

Yield Distribution: choose the payout ratio of the profit generated by the activities in your


Why did Reef build on Polkadot?

Polkadot’s interoperability layer allows us to communicate with all the blockchains and still

achieve high throughput. Additionally, we inherit their security model, which means we get to

be highly resilient, can do forkless upgrades while still being able to maintain stable on-chain


We are fully compatible with Ethereum and the current DeFi ecosystem, but we believe in

order to innovate and take the landscape to the next level, we have to take it cross-chain,

and through Polkadot we are able to achieve that.

Besides this, Polkadot’s parachain communication (XCMP) and bridging mechanism,

combined with the possibility to run solidity code on parachains such as Plasm and

Moonbeam, use native Ethereum addresses and huge ecosystem support (Web3, Parity)

were the reasons why we chose to build on Polkadot. Reef being cross-chain gives us

flexibility, which means we are able to shift our product and features based on where the

users are and what the users want/need in the future.

Where does the APY from staking into the Reef pool come from?

The APY generated by the Reef pool comes from the income streams generated by the

Reef’s ecosystem. We currently have 3 income streams: Basket engine, protocol fees and

interest paid by power users who borrow tokens from the Reef pool in order to increase their

voting power.

All the 3 income streams are currently flowing in the Reef pool. In the future, through voting,

we plan to introduce Reef Treasury which will be the recipient of the income streams, and

the DAO can further decide how to allocate the funds (eg: grants, buybacks, etc.)

Besides the APY from the Reef Pool, the users will earn yields generated by the smart yield

farming engine which gives them exposure to different DeFi activities and tokens from

multiple ecosystems.


9. Badger DAO (BADGER):

Badger is a decentralized autonomous organization (DAO) with a single purpose: build the

products and infrastructure necessary to accelerate Bitcoin as collateral across other



10. Rari Governance Token (RGT):

The Rari Governance Token is the native token behind Rari Capital. Rari Capital is a non-

custodial DeFi robo-advisor that autonomously earns users yield.