Trail notes
- Every DeFi yield is paid by someone: borrowers, traders, a token issuer printing rewards, or your own leverage.
- APR is a simple annual rate; APY assumes you compound. The same pool can show very different numbers depending on which is used.
- Advertised rates are usually backward-looking snapshots and change as deposits, demand and token prices change.
- Stress-test a yield by removing reward tokens, halving their price and subtracting costs and impermanent loss.
Yield farming in one paragraph
Yield farming means putting crypto-assets to work in DeFi protocols to earn a return, then often moving or re-depositing those returns to earn more. It can be as simple as supplying stablecoins to a lending pool, or as complicated as borrowing against one position to fund another and stacking rewards from several protocols.
The word “farming” suggests something growing on its own. In reality, every yield has a source, and every source has a risk attached. The most useful habit you can build is asking, for any number on a screen: who is paying this, and why?
Where the yield actually comes from
| Source | Who pays | What it depends on | Key risk |
|---|---|---|---|
| Lending interest | Borrowers | Demand to borrow; pool utilization | Bad debt, liquidity crunches |
| Trading fees | Traders using a pool | Trading volume relative to pool size | Impermanent loss |
| Token emissions | The protocol, by issuing new tokens | The reward token keeping its value | Dilution and price falls |
| Staking rewards | The network (new issuance and fees) | Protocol rules and validator performance | Slashing, lock-ups |
| Leverage | You, by borrowing to multiply exposure | Borrow rates staying below earned rates | Liquidation |
Lending interest and trading fees are paid by real users for a real service, so they tend to be steadier, though still variable. Token emissions are different: a protocol pays you in its own newly created tokens to attract deposits. That yield is only worth what the market will pay for those tokens. We cover this in detail in liquidity mining.
Leverage is not really a source of yield. It multiplies whatever yield and losses you already have. A strategy that borrows at 6% to earn 9% looks attractive until the borrow rate rises or the collateral falls. See the lending protocols guide.
See the full infographic with notes.
APR vs APY
APR (annual percentage rate) is a simple yearly rate with no compounding. APY (annual percentage yield) assumes you reinvest earnings, so it is higher for the same underlying rate. DeFi dashboards use both, sometimes side by side, which makes comparison tricky.
At higher rates the gap widens, which is why very large APYs can look dramatic. A number like that usually assumes the rate holds steady for a full year and that you compound constantly at no cost, neither of which is realistic. Our APY reality check lets you strip those assumptions out.
Why advertised rates move
Rates on DeFi dashboards are usually calculated from recent activity and projected forward. They change because:
- More deposits arrive. Rewards and fees are shared among more people, so each share shrinks.
- Demand changes. Borrowing and trading volume rise and fall with markets.
- Reward token prices move. If emissions are paid in a token that falls 50%, that part of the yield halves.
- Emission schedules change. Many protocols reduce rewards over time or end programs entirely.
- Governance votes. Fee rates, reward allocations and interest models can be changed by token holders.
This is why the yields page on this site shows ranges and context rather than a single number to chase, and why a high rate on its own tells you very little.
How to stress-test a yield
Before trusting any rate, run it through a few simple what-ifs. The aim is not precision; it is to see how much of the number survives a normal bad month.
A yield that is far above what insured savings pay is not a free bonus. It is compensation for risks such as smart contract failure, depegs, liquidation or the reward token losing value. If you cannot name the risks, you cannot judge whether the yield is worth them.
The Canadian angle
Yield farming generates many small transactions: deposits, claims, swaps and withdrawals. Each can matter for tax, and the CRA’s records page asks you to keep the date, amount, Canadian-dollar value and nature of each transaction.
As of 2026-10-30, the CRA has published no DeFi-specific guidance on lending, liquidity pools or yield farming. It lists rewards (for example from mining or staking) as a way of acquiring crypto-assets, and it treats crypto-to-crypto trades as dispositions. How farming rewards are taxed in your case may depend on the facts. See DeFi transactions and tax and capital vs business income.
It is also worth comparing any yield with a plain insured option over the same period. Our DeFi vs GIC comparison puts the trade-offs side by side.
Your checklist
Questions people ask
Where does DeFi yield come from?
DeFi yield comes from borrowers paying interest, traders paying fees, protocols issuing reward tokens, network staking rewards, or leverage that multiplies those sources. Each source carries its own risk.
What is the difference between APR and APY?
APR is a simple annual rate without compounding, while APY assumes earnings are reinvested. A 10% APR is about 10.47% APY if compounded monthly, but compounding in DeFi costs gas each time.
Why do DeFi yields change so much?
Advertised yields are usually based on recent activity, and they shift as more deposits share the rewards, as borrowing and trading demand changes, and as the price of any reward token moves.
Is yield farming income taxable in Canada?
It may be. As of 2026-10-30 the CRA has no DeFi-specific guidance on yield farming, but it lists rewards as acquisitions of crypto-assets and treats crypto-to-crypto trades as dispositions, so keep detailed records and consider professional advice.
Sources and dates
- Decentralized finance (DeFi) — ethereum.orgreference
No date shown on page · checked 2026-10-31. Overview of DeFi building blocks on Ethereum. - Ethereum staking — ethereum.orgreference
No date shown on page · checked 2026-10-31. Solo, pooled and centralized staking options and their trade-offs. - Understanding crypto-assets and your tax obligations — Canada Revenue Agencyin force
No date shown on page · checked 2026-10-30. Defines crypto-assets; lists dispositions (sell, trade, barter, gift, gamble) and acquisitions including mining/staking rewards. - Reporting income from crypto-asset transactions — Canada Revenue Agencyin force
Page date 2025-12-02 · checked 2026-10-30. Business income vs capital gains is case by case; lists business indicators; crypto-to-crypto trades are dispositions; half of a capital gain is taxable. - Keeping books and records of crypto-assets for tax filing — Canada Revenue Agencyin force
Page date 2025-11-10 · checked 2026-10-30. What to record per transaction, wallet addresses, yearly balances; export platform history; keep records at least six years. - Investor tools — crypto assets — Canadian Securities Administratorsreference
Page date 2025-10-22 · checked 2026-10-30. Crypto assets can be very volatile and risky; you could lose some or all of your funds.
Education only. Nothing on this page is financial, investment, tax or legal advice, or a recommendation to buy, sell, stake, lend or borrow any crypto-asset. Crypto-assets can lose some or all of their value and are not covered by CDIC. Canadian rules change: check the dated sources above and talk to a qualified professional about your situation. Full disclaimer.