Yield farming in DeFi involves leveraging liquidity pools to earn rewards. Users lock their assets into smart contracts, providing liquidity for decentralized exchanges or lending platforms. In return, they receive tokens representing their stake in the pool. These tokens can be further used for additional yield farming or traded. The rewards earned can vary based on factors such as demand, pool size, and platform protocols. Yield farming allows users to earn passive income by maximizing their capital utilization.