Yield farming is a decentralized finance strategy in which liquidity is provided in exchange for rewards in the form of transaction fees paid by liquidity takers. This paper analyzes transaction costs, returns, and risks using on-chain data from major decentralized exchanges. To understand the economic mechanisms of yield farming, the paper presents a mathematical model that incorporates stochastic returns, impermanent loss as a source of risk, and transaction costs. By calibrating the model to the data, the authors gain insights into the trade-off between future benefits and transaction costs, offering a valuable understanding of yield farming’s economic dynamics.