How does yield farming work?

To yield farm, you need assets for which the common types of yield farming apply, the most popular being ERC20 coins. You also need a decentralised wallet to connect to the application, the most popular being browser wallets like Meta Mask or Trust Wallet.

Earning interest on ETH

A simple Yield Farming strategy would be to deposit ETH with Compound and earn interest. Here are the steps:

• Navigate to the Compound App and connect your wallet; this will allow it read your balance
• Select the asset you wish to deposit
• You’ll see the ETH interest rate & rate at which you’ll earn Compound
• Input the amount you wish to deposit & sign the transaction
• Signing a transaction will incur a GAS fee which your wallet will show
• You will be issued with cETH minted by the Compound Smart Contract in proportion to the ETH deposited
• You’ll immediately start earning interest on your ETH deposit & can withdraw at any time
• To withdraw your funds just Repay your cETH and sign the transaction with GAS fee.
• The proportionate amount of ETH, including the interest earned, will be sent back to your ETH address
• You will also earn COMP tokens paid once you return the cETH
• You can use the COMP to participate in decisions on how Compoud is run, trade it or deposit it in a pool to gain yield.

Borrowing against ETH

• Navigate to the Compound App and connect your wallet; this will allow it to read your balance
• Select the asset you wish to borrow against
• You’ll see the interest rate & rate at which you’ll earn Compound
• You’ll see the maximum amount you can borrow based on your collateral as a %
• Input the amount you wish to borrow & sign the transaction
• Signing a transaction will incur a GAS fee
• You will be issued with the borrowed asset
• You’ll immediately start accruing interest on your loan
• To Repay the loan, return the required amount of ETH – original deposit plus interest – and sign the transaction with GAS fee
• You will also earn COMP tokens paid once you repay the loan
• You can use the COMP to participate in decisions on how Compound is run, trade it or deposit it in a pool to gain yield.