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DeFi Lending and borrowing platform are crucial elements of today’s finance, and it is effectively taken care of by loans. In the decentralized realm, lending and borrowing can be taken care of by smart contracts. DeFi lending and borrowing happens completely on a peer-to-peer basis, without involving any intermediaries.

To lend, it is only natural that one must have a receptacle of the asset that needs to be lent. In this case, the “asset” it’s declared as a liquidity pool. A liquidity pool is a repository of multiple tokens shielded securely by a smart contract. People can deposit the crypto-cash that they do not use through a smart contract into this liquidity pool. Another user who expects to borrow some money can borrow from this pool. In nature, the liquidity pool functions as a bank.

If a bank can earn over the interest levied on the loan amount, people who deposit their money in the liquidity pool are also eligible to earn within the interest. This process of earning money from decentralized lending platforms is called yield farming. It is one of the most profitable ways to make money in the DeFi range.

Some DeFi platforms even go ahead and attract users to participate in their platform by giving away free tokens. With the first token serving as the attraction, liquidity endures developing in the platform. This method it’s called liquidity mining. And it is considered to be one of the many techniques of yield farming.

Most DeFi applications are open source. This would mean that it is publicly available, and these apps can be used as the foundation for building new apps with the same code. This property is known as composability. If we extrapolate this trait, the entire blockchain can be filled with decentralized applications designed to execute various DeFi operations.