Yield farming concepts in Blockchain / Solidity - Cheat Sheet & Quick Revision

Recall & Review

beginner

What is yield farming in blockchain?

Yield farming is a way to earn rewards by lending or staking cryptocurrency in decentralized finance (DeFi) platforms. It’s like putting your money to work to earn interest or new tokens.

beginner

What is a liquidity pool in yield farming?

A liquidity pool is a collection of funds locked in a smart contract. It allows users to trade or lend tokens. Yield farmers add their tokens to these pools to earn fees and rewards.

intermediate

Explain impermanent loss in yield farming.

Impermanent loss happens when the value of tokens you put in a liquidity pool changes compared to holding them. It can reduce your earnings if prices move a lot.

intermediate

What role do governance tokens play in yield farming?

Governance tokens let yield farmers vote on decisions for the DeFi platform. Holding these tokens can also give extra rewards or influence over the project.

beginner

How does staking differ from yield farming?

Staking means locking tokens to support a blockchain network and earn rewards. Yield farming usually involves providing liquidity to pools and earning fees plus rewards.

What do you provide to a liquidity pool in yield farming?

A Physical cash

B Cryptocurrency tokens

C Credit card details

D Personal identity

You provide cryptocurrency tokens to liquidity pools to enable trading and earn rewards.

What is a risk unique to yield farming called?

A Inflation

B Slippage

C Phishing

D Impermanent loss

Impermanent loss is a risk where token price changes reduce your earnings in liquidity pools.

Governance tokens in yield farming allow you to:

A Vote on platform decisions

B Withdraw tokens instantly

C Create new cryptocurrencies

D Hack smart contracts

Governance tokens give holders voting rights on platform rules and upgrades.

Yield farming rewards usually come from:

A Government bonds

B Bank interest rates

C Trading fees and new tokens

D Credit card cashback

Rewards come from fees generated by trades and sometimes new tokens minted by the platform.

Which of these best describes staking?

A Locking tokens to support a blockchain network

B Buying stocks on the market

C Mining physical gold

D Sending emails securely

Staking means locking tokens to help run a blockchain and earn rewards.

Describe how yield farming works and why people use it.

Think about how you can earn money by letting others use your tokens.

Explain impermanent loss and how it affects yield farmers.

Consider what happens if token prices move while your tokens are locked.