What Is "LP Farming" and How Does It Relate to Arbitrage and Impermanent Loss? ▴ Learn

What Is “LP Farming” and How Does It Relate to Arbitrage and Impermanent Loss?

LP farming refers to providing liquidity to a pool and staking the resulting LP tokens to earn additional rewards, often in the form of a governance token. This extra yield is intended to incentivize liquidity and is crucial for offsetting impermanent loss.

Arbitrage activity generates the trading fees that LPs earn, but the farming rewards are often a separate, larger source of income designed to make the net position profitable despite the IL.

How Do Yield Farming Incentives Influence an LP’s Decision to Tolerate IL?

How Does the Inflation Rate of Staking Rewards Affect the Token’s Intrinsic Value?

How Do Staking and Governance Rights Affect a Token’s Perceived Intrinsic Value?

What Is the Difference between Staking and Yield Farming?