Yeild Farming Pools

How does Yield Farming work?

Yield farming is closely related to a model called automated market maker (AMM). It typically involves liquidity providers (LPs) and liquidity pools. Let’s see how it works.
Liquidity providers deposit funds into a liquidity pool. This pool powers a marketplace where users can lend, borrow, or exchange tokens. The usage of these platforms incurs fees, which are then paid out to liquidity providers according to their share of the liquidity pool. This process is the foundation of AMM.
On top of fees, another incentive to add funds to a liquidity pool could be the distribution of the protocol token. For example, there may not be a way to buy a token on the open market, only in small amounts. On the other hand, it may be accumulated by providing liquidity to a specific pool. Liquidity providers get a return based on the amount of liquidity they are providing to the pool.
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