When people say they are yield "farming," they just mean that they're giving something to a platform (usually by staking their assets) that justifies paying out an annualized percentage yield (APY). Often, this effort entails adding liquidity to a network, and then staking liquidity provider tokens, or adding liquidity to a market for borrowing and lending. Projects incentivize this behavior when it enables them to function more efficiently. Sushi has by and large the most effective system in DeFi for farming yield. This is in part because nearly every token on Sushi is natively yield bearing, which enables Sushi to function very efficiently. In Sushi's case, adding liquidity to any branch of the platform allows the platform as a whole to be more efficient, and every type of market is available on Sushi. It has its own thriving exchange (SushiSwap), it's own lending market (Kashi), and it has staking derivatives (xSUSHI). Sushi is able to deliver a compounded yield farming experience by "stacking" these three yields in simple procedures.
There's three types of yield on Sushi (and arguably three types of yield in DeFi) and therefore three types of yield you will see throughout Sushi. Since Sushi has expanded beyond SushiSwap and into yield farms and now into servicing leverage demand (Kashi), Sushi is arguably the only place where you can effectively stack these three yield types on top of each other. If you really want to understand the full scope of Sushi, you should try to understand how to stack these yields. Here is a description of the three types of yield: 1. Protocol usage: Whenever someone makes a trade on SushiSwap, 0.25% swap fees are distributed among a liquidity providers (https://app.sushi.com/pool), and 0.05% of all swaps on all chains are accrued by xSUSHI holders (https://app.sushi.com/stake). 2. Network tokens: KMP tokens and SLP tokens are given rewards (https://app.sushi.com/yield), and these rewards further optimize your impermanent gain (yields earned through volume and volatility). 3. Leverage demand: this can be expressed as the interest rate for lenders on Kashi (https://app.sushi.com/bento/kashi/lend). Demand for leverage in crypto markets drives increased borrowing.
Now that you know what the three forms of yield are, you can try to stack them yourself. Start small if you like, by finding a token pair that you want to hold, and using it to stack two types of yield on Sushi. Usually, the pairs require Ether and a second token, but the following example can be any pair that’s on the Onsen menu, or the permanent menu: (1) Provide liquidity on SushiSwap by entering a pool that is incentivized by Sushi (https://app.sushi.com/pool). (2) Deposit the liquidity token (SLP) you received after supplying liquidity into a yield farm (https://app.sushi.com/yield), and earn SUSHI. (1) Stake your SUSHI rewards for additional yield (https://app.sushi.com/stake), and earn XSUSHI.
If you think like you’re ready to try something a little more complicated, you can try stacking three types of yields as described below. As you can see, stacking three types of yields requires utilizing Kashi. (3) Lend an asset to a Kashi market, and receive a KMP token in return (https://app.sushi.com/bento/kashi/lend). (2) Take the KMP token and stake into a yield farm, to earn SUSHI (https://app.sushi.com/yield). (1) Stake SUSHI rewards for additional yield in xSUSHI (https://app.sushi.com/stake).