Yield farming is rife with risk. Some of these risks include: Volatility: Volatility is the degree to which an investment's price fluctuates. A volatile investment is one that experiences a lot of price movement in a short period of time. The price of your tokens could crash or surge while they're locked up. Fraud: Yield farmers may unwittingly put their coins into fraudulent projects or schemes that make off with all of the farmer's coins. In fact, fraud and misappropriation account for the vast majority of the $1.9 billion in crypto crimes in 2020, according to a report by CipherTrace. Rug pulls: Rug pulls are a type of exit scam where a cryptocurrency developer gathers investor funds for a project then abandons the project without returning investors' funds. The previously mentioned CipherTrace report noted that nearly 99% of the major fraud that occurred during the second half of the year was due to rug pulls and other exit scams, which yield farmers are particularly susceptible to. Smart contract risk: The smart contracts used in yield farming can have bugs or be susceptible to hacking, putting your cryptocurrency at risk. "Most of the risks with yield farming relate to the underlying smart contracts," Kurahashi-Sofue says. Better code vetting and third party audits are improving the security of these contracts. Impermanent loss: The value of your cryptocurrency could rise or fall while it is staked, creating temporarily unrealized gains or losses. These gains or losses become permanent when you withdraw your coins, and may result in you having been better off if you'd kept your coins available to trade if the loss is greater than the interest you earned. Regulatory risk: There are still many regulatory questions around cryptocurrency. The SEC has stated that some digital assets are securities and thus fall under its jurisdiction, allowing it to regulate them. State regulators have already issued cease and desist orders against one of the biggest crypto lending sites, BlockFi. "There's always risk in using decentralized apps," Kurahashi-Sofue says. "It's all about minimizing the risk enough for you to be comfortable with using them, based on your own research. Users should always look into the team behind the application and its transparency and diligence with security audits."