What is yield farming in cryptocurrency?

Yield farming, also known as liquidity mining, is the practice of providing liquidity to decentralized finance (DeFi) platforms in exchange for rewards, typically in the form of additional cryptocurrency. Yield farmers lend their assets to liquidity pools, which are used by others to execute trades or loans. In return for supplying liquidity, farmers receive rewards, which are often a percentage of the transaction fees or newly minted tokens. Yield farming can offer high returns but comes with significant risks, including impermanent loss, where the value of the provided assets decreases relative to holding them outside the pool, as well as smart contract vulnerabilities.