If you have been in the crypto space for some time, you might have come across the term yield farming. No, it has nothing to do with growing crops, but more with the growing of money or crypto assets to be precise. In this article we will take a closer look at yield farming, what it is all about and what are the risks involved.

The rise of DeFi

Just over the past year there has been a huge rise in the use of DeFi applications. This is clearly evident in the fast increasing Total Value Locked (TVL) in decentralized protocols. TVL basically represents the amount of assets currently being locked or staked in a liquidity pool. Liquidity pools are just a collection of funds locked in a smart contract and TVL is commonly used as a gauge on the health of the pool. It is a useful measure to compare between protocols as well as for the DeFi market as a whole.

What exactly is yield farming?

In essence, yield farming is using crypto to earn more crypto. It is about putting your crypto assets to work and trying to maximise return on capital. It is typically done by staking or locking up your crypto in a smart contract which are used as liquidity pools, in return you will receive rewards in tokens.

How does it work?

Depending on the protocol, the liquidity pools will be used for different services. The general idea is that for providing liquidity to the pool, liquidity providers will get a share of the fees generated by the usage of the underlying platform. Most common usage of liquidity pools are for lending and borrowing platforms as well as for decentralized exchanges (DEX).

How much can you make?

Risks involved

Just looking at the returns, it might all look too good to be true. Well that is only one side of the story, as with any investment, the returns are the reward for taking on risk. Here are some of the common risks involved with yield farming.


When borrowing on a decentralized platform it is often overcollateralized, which means that you can only borrow up to a certain percentage of the value of collateral (tokens) you have deposited into the smart contract. After which the value of your collateral has to be kept a certain percentage above the loan amount at all times. There is significant liquidation risk for your collateral tokens as cryptocurrencies are highly volatile. Huge price drops in the market can cause your collateral value to fall below the liquidation threshold, resulting in the loss of all your collateral tokens.

Impermanent Loss

On DEXs there is a risk of impermanent loss while providing liquidity. This happens when the value of the two assets provided appreciates or depreciates in relation to the other. Liquidity providers will only realize this loss the moment they withdraw their liquidity. The loss is a comparison between the total value they receive back and the total value of what they would have if they just held the tokens without providing liquidity.

Smart Contract

Other risk comes in the form of the smart contracts, vulnerabilities and bugs not detected early might enable the protocol to be hacked and funds stolen.

Mars Panda Yield Farming

While chasing insane returns is the goal of yield farming, one should not turn a blind eye to the risks. Understanding the high risk involved in DeFi, Mars Panda aims to provide a safe and trusted platform for all your DeFi activities. Mars Panda is Headquartered in Singapore, and while trying to best comply to Singapore Regulations, has commissioned an entity that has obtained a regulatory exemption under the Payment Services Act (“PSA”) for digital payments token services, Legatus Global Pte Ltd to be issuing the Mars Panda Token (MPT) as well as doing the KYC/AML during the private sales and distribution of tokens to private investors. Users can now be rest assured of the security of Mars Panda’s DeFi platform. Moreover, our smart contracts will be audited by a reputable auditing firm specialized in smart contract security.

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