> For the complete documentation index, see [llms.txt](https://mars-protocol.gitbook.io/mars-protocol/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://mars-protocol.gitbook.io/mars-protocol/education/yield-farming.md).

# Yield Farming

**Yield Farming** is a way to put your assets to work earning additional tokens or fees in various decentralized finance (DeFi) protocols. Note that: 

* Yield farming can offer high returns but comes with significant risks. 
* Yield returns could be fixed or dynamic and can be earned on a range of assets including stablecoins.
* Typically, a DeFi protocol rewards their users with their own-issued governance tokens for participating and growing their DeFi protocol.

### Yield farming strategies may include:

1. <mark style="color:green;">**Staking LP Tokens:**</mark> Getting liquidity pool tokens from an Automated Market Maker (AMM) and depositing them in a staking program to earn more token rewards.
2. <mark style="color:green;">**Lending/Borrowing:**</mark> Lending or borrowing tokens and getting compensated with interest and/or governance tokens.
3. <mark style="color:green;">**Leveraging:**</mark> Depositing tokens in a smart contract and using them as collateral to borrow additional tokens. Some users then take these borrowed funds and lend them out again thereby "leveraging" their assets.
4. <mark style="color:green;">**Combination of other strategies:**</mark> Users can combine all of the above strategies by, for example, leveraging an asset and putting borrowed tokens in a liquidity pool or staking program.

All yield farming strategies comes with various risks explored below.

### Yield farming risks include:

1. <mark style="color:orange;">**Smart Contract Bugs:**</mark> A poorly-tested/audited protocol could face various bugs and issues that could lead to permanent loss of user funds.
2. <mark style="color:orange;">**Hack Attempts:**</mark> Virtually all DeFi protocols are a target for hackers who aim to uncover attack vectors that enable them to drain funds from a protocol.
3. <mark style="color:orange;">**Systematic Risks:**</mark> In volatile markets, rapidly changing asset prices could lead to liquidation of your collateral, network congestion that causes protocols to behave in unexpected ways or significant impermanent loss in liquidity pools.

{% hint style="warning" %}
It is advisable that a user first understands the risks involved with a protocol before participating.

It's always better to try a new yield farm with small/test amounts first.
{% endhint %}