Farming, or liquidity
mining, is a passive way to generate rewards with cryptocurrency. You can simply lock up cryptocurrencies and get rewards. This is also known as staking
. In most cases, it works with liquidity providers (LPs) that add funds to liquidity pools. What is a liquidity pool? It’s a smart contract
that contains funds. In return for providing liquidity to the pool, LPs get a reward like Uni-v2 LP tokens or BALANCER tokens. Those reward tokens then may be deposited to other liquidity pools or contracts to earn rewards there, and so on.