Yield farming, also referred to as liquidity mining, is a Decentralized Finance (DeFi) rewards scheme that incentivizes crypto holders to become liquidity providers for a project. Yield farming involves lending your cryptocurrency to others using a smart contract, and, in return lenders earn more cryptocurrency.
People who take part in yield farming agree to lock up an amount of cryptocurrency into a liquidity pool for a certain period of time in order to earn rewards. Yield farmers will then utilize various strategies and move the pooled crypto around between different lending marketplaces to maximize their returns.
Yield farming, while still in its infancy, is changing the way people HODL, preferring to put their stored crypto to use instead of letting it sit idly.
A lot of yield farming is still mostly done on the Ethereum blockchain, using ERC-20 tokens but cross-chain bridges and other DeFi advancements mean that yield farming is becoming increasingly popular on other blockchains as well.