Below, we’ll cover key terms & considerations relating to Automated Yield Farming.

Key Terms

• Yield Optimization: The process of maximizing returns by constantly reallocating assets to the highest-yielding DeFi strategies.
• Auto-Compounding: A mechanism that automatically reinvests farming rewards to maximize earnings over time.
• Yield Aggregator: A DeFi protocol that automates yield farming by pooling assets and redistributing them across multiple platforms.
• Vaults: Smart contract-based pools where users deposit funds, and strategies automatically execute yield farming.
• Cross-Chain Strategies: Automated strategies that bridge assets between blockchains to chase the best yields.

Key Considerations:

• Smart Contract Risk: Automated platforms rely on complex smart contracts, increasing the risk of exploits and bugs. For example, popular Automated Yield Farming project Harvest Finance was exploited for $24M.
• Network Selection: Different blockchains offer varying yields, fees, and protocol support, making network choice critical for automated yield farming. While Ethereum has deep liquidity, high gas fees can make rebalancing costly, whereas Layer 2s and alternative chains provide cheaper transactions but may have fewer farming opportunities.
• Gas Fees & Network Congestion: Frequent rebalancing can result in high transaction costs, particularly on networks like Ethereum with expensive gas fees. This can be mitigated by methods such as optimizing rebalancing frequency or batching transactions.