A beginner’s guide to yield farming vs. staking
Nov 11, 2025・6 min read
If you want to earn from your crypto without day trading, you have two main strategies to choose from: yield farming and staking. Yield farming takes place in decentralized finance (DeFi), where you lend tokens or add liquidity to earn interest. Staking is the steadier option, where you lock up tokens to help keep a blockchain running and collect rewards over time.
In this guide, we’ll compare yield farming versus staking, showing you what the risks and rewards look like. Along the way, we’ll help you figure out which investment path makes the most sense based on your assets and goals.
What’s yield farming?
Yield farming is a DeFi strategy where you earn rewards by supplying your crypto assets to protocols. By lending your assets, you help DeFi platforms stay liquid – meaning there are enough funds available for other users who want to borrow or trade. In exchange for providing that liquidity, you (as a “farmer”) earn a share of the fees or token rewards the platforms generate.
When compared to staking, yield farming generally offers higher returns. But it also comes with greater risks due to market volatility and complex smart contract setups.
Liquidity in yield farming
In yield farming, you provide liquidity by depositing your token pairs into pools. Then you and other users can withdraw later without causing big price swings. Deeper pools with more capital are usually more stable. Plus, when liquidity is high trades cause less slippage, and returns are steadier.
Most platforms allow you to withdraw your funds whenever you want, but some have lock-up periods or small withdrawal fees to discourage quick exits. For example, a platform might charge a 0.1% fee for withdrawals made within three days of depositing.
Yield farming returns
How much you earn through returns will vary widely depending on the protocol and market conditions. Annual percentage yields (APYs) can range from a few percent to well over 100% in new or high-risk pools. Very high APYs usually rely on short-term token incentives, and they can drop quickly as more liquidity arrives.
Risks of yield farming
While the potential returns are high, yield farming does come with some significant risks. Price swings between paired tokens can cause impermanent loss, and bugs in smart contracts may expose funds to hacks or exploits. Market volatility can quickly erase gains if reward tokens lose value. In extreme cases, poorly managed projects can disappear completely in what’s known as a “rug pull.”
Pros and cons of yield farming
Now that you know how yield farming works, let’s summarize the key benefits:
- Ongoing rewards: You earn continuously from fees or interest while your assets stay in a pool.
- High returns: Well-performing pools can offer much higher yields than staking or traditional investing.
- Flexible options: You can switch between platforms to find better rates or diversify risk.
And before you decide to invest, be aware of these potential downsides:
- Impermanent loss: Price swings between pooled tokens can reduce your assets’ value.
- Smart contract bugs: Vulnerabilities in the code can cause unexpected losses.
- Regulatory changes: New rules or restrictions could affect how or where you farm.
Types of yield farming platforms
Most yield farming happens on decentralized applications (dApps) where people lend and trade crypto. These include:
- Lending and borrowing platforms: Places like Compound and Aave let you lend out crypto to earn interest. It’s similar to a savings account at a traditional bank, but here everything runs on smart contracts.
- Decentralized exchanges (DEXs): DEXs such as Uniswap handle trades automatically using automated market makers. You can earn yields by adding token pairs. Let’s say you deposit one Ethereum (ETH) and 2,000 USDC into a liquidity pool. Each time traders swap between those tokens, a 0.3% fee is collected. If your deposit makes up 0.1% of the pool, you’ll earn 0.1% of all fees, plus any bonus tokens the platform offers for providing liquidity.
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What’s staking?
With staking, you lock up your existing digital assets on a PoS blockchain like Ethereum, Cardano, or Solana, to help keep the network secure and running. In return, you receive rewards – typically paid in the blockchain’s native token – for contributing to its stability.
Unlike in yield farming, your rewards come directly from the network, and are based on how much you’ve staked and how long you keep your assets locked up. That makes staking less risky and more predictable than most DeFi strategies.
How staking works
One way to stake your crypto is by running your own validator node, where you directly help process transactions on the PoS network. Validators who keep uptime and follow the rules earn rewards, while those who break them or go offline risk losing part of their stake, a penalty called slashing. Staking gives you full control, but it also requires technical know-how and a minimum stake – for example, you need 32 ETH to become a validator on Ethereum.
The second option is delegating your tokens to a validator or staking pool through a wallet, exchange, or platform like Lido or Cardano’s Daedalus. You keep ownership of your crypto, while someone else handles the technical parts. In return, you share the rewards they earn based on your contribution.
Liquidity and returns in staking
In staking, liquidity depends on the network and platform. Many blockchains have an “unbonding” period when you can’t move or sell your tokens. For example, this period on Cosmos (ATOM) takes about 21 days.
Staking rewards range from 3% to 10% APY, and vary depending on the network you support, validator performance, and total tokens staked. For example, if you stake ETH on Kraken you can earn up to 6.5% APR.
Pros and cons of staking
Staking offers the following advantages:
- Steady rewards: You can earn predictable payouts in the native token.
- Energy efficiency: PoS networks require far less energy than traditional mining on PoW.
- Simple participation: You can stake directly through your wallet or exchange.
However, it comes with a few drawbacks and potential risks:
- Market volatility: Token prices can fall during market downturns.
- Slashing penalties: If a validator isn’t working properly, part of the staked amount might be lost in penalties.
- Limited access: Some networks have “unbonding” periods, which means you can’t withdraw your funds instantly.
- Regulatory uncertainty: Changing rules could impact how staking rewards are distributed or taxed.
Yield farming vs. staking: Key differences and similarities
Both yield farming and staking let you earn passive returns from your crypto, but their risk profiles and user demands are very different.
How to choose between yield farming vs. staking
Ultimately, your decision depends on your risk tolerance and the time you’re willing to commit. If your goal is steady and predictable growth, staking might be a better option. It requires little maintenance and offers consistent rewards. The risks are also lower, so staking is a good choice if you’re a long-term holder who’s looking for a hands-off way to earn more.
Yield farming, on the other hand, is better for people who want higher potential returns and don’t mind more active participation. Since profits can fluctuate quickly, you’ll need to keep up with protocol changes and reward rates.
Invest with confidence and track your crypto portfolio
Both staking and yield farming can offer strong financial returns. But whether you opt for more reliable staking or take your chances with yield farming, you’ll need to keep an eye on the risks and carefully track your portfolio.
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Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.
FAQ
What’s crypto farming?
Crypto farming, also known as yield farming, is when investors lend or lock up their assets in DeFi platforms to earn rewards. It offers high earning potential, but also comes with the risk of unexpected losses.
What’s the difference between staking and pooling?
Staking helps secure a blockchain network, and lets you earn rewards from validating transactions. Pooling means supplying tokens to a decentralized exchange or protocol so others can use them to trade or borrow, while you earn a share of the fees or incentives.
Which is better, staking or liquidity pooling?
Neither is universally better – the right choice between staking and pooling depends on your needs. Staking offers more stability but lower income potential, while liquidity pooling offers higher rewards but more risks.
What should you consider when choosing between yield farming and staking?
Consider your goals, current assets, available time, and risk tolerance. Staking is better for low-risk investing with predictable returns, while yield farming offers higher but riskier rewards.