Real Yield: The Savior of DeFi
The 2022 crypto bear market is probably the most brutal, especially in the DeFi market.
In Q2, we saw the total value locked (TVL) in decentralized finance (DeFi) plunge by a whopping 67%. Some DeFi protocols and coins died off, while others were able to withstand the storm.
However, one critical thing the bear market revealed is the unsustainability of most yields with 5–6 digit APRs. Most traders realized the hard way that bloated APRs were nothing short of ‘ponzu’ incentives used by DeFi protocols to acquire users and liquidity.
Fortunately, everything is changing with the rising narrative of ‘Real Yield.’ This article will look at the meaning of real yield, why it’s needed, how to research real yield projects, and a few examples of real yields.
So, What is Real Yield in DeFi?
Real yield refers to the yield obtained from the generation of authentic revenue, as opposed to revenue derived from token emissions. Regarding real yield, holders of a protocol’s native token are compensated from the platform’s trading fees, product profits, and more.
It is synonymous with the dividends paid to shareholders in traditional finance (TradFi). The prior ‘fake yield’ only succeeded in creating a set of DeFi users that constantly flip and dump projects in search of a goldmine.
With real yield, users can confidently bet on a DeFi project and relax, knowing that the rewards accrued are based on their ability to retain users and volume over time.
Trusting Again
During the 2020–2021 DeFi summer, most projects competed to acquire more users and liquidity by offering ‘juicy’ APRs. Since it was the trend, users were accustomed to it and would quickly dump a project’s token for a promising one.
Unfortunately, this strategy seems effective at face value but is largely unsustainable. Here’s the thing, at the early phase, ‘ fake yield,’ gotten through token emissions, helped most projects to scale. That’s because most DeFi users fell for shiny APRs.
In the long run, it is disastrous due to market sentiments and dumping from users, which inadvertently made projects emit more tokens to increase their yields and maintain their platform. Sadly, this further devalues their tokens and triggers massive dumps from investors, endangering the ecosystem.
0xSami, the co-founder of Redacted, made a valid point in his recent article. He said, and I quote, “While there is nothing wrong with bootstrapping a protocol with emissions, it is a tad misleading for those who choose to buy into a token simply for the ETH yield, subtracting operational costs and expenses (the fee the DAO keeps), you will almost always be diluted by the number of tokens that went out to pull in that ETH.”
We saw this played out in the collapse of TerraUSD, LUNA, and many other projects, which rekt’ed many investors. To the extent that some investors attempted suicide.
The truth is, the collapse and recent attacks on DeFi platforms have made people lose fate in DeFi. And, Real Yield might be the beamer of hope. The “savior” of DeFi.
Real yield replaces short-term high APRs with unsustainable yields, with long-term low APRs with sustainable and predictable yields. And, It ditches the token emission strategy for a revenue generation fee-based strategy.
How to research real yield projects
Here’s how to research real yield projects using two popular tools: Token Terminals and Messari.
- Token Terminals
Token Terminal is a platform that aggregates the revenue of leading blockchains and dApps. So, you can use Token Terminals to view the revenue data of the project in real-time. Dune Analytics is a helpful tool for determining a project’s revenue and fees.
- Messari
Messari is a leading crypto research publication aimed at bringing transparency to the ecosystem. Messari is handy for analyzing the emissions of a DeFi project. You can look from the supply angle and token emissions to get a sense of where their yield is coming from.
Top 3 Real Yield Protocols
1. UMAMI: Generating real yield is at the core of Umami’s product strategy. Their products like Marinate, USDC, and upcoming BTC & ETH vaults do not rely on shiny incentive schemes to generate yields. Instead, they depend on sustainable on-chain revenue streams.
2. Gains Network
Gains Network’s gTrade offers a seamless and efficient trading experience for traders. Here’s how it works, users maintain custody of their funds, get the highest leverages, pay competitive fees, and enjoy high liquidity & low impact on prices.
GNS stakers are rewarded from market and order trades’ fees, not from token emissions.
3. Redacted Finance
Following the launch of Redacted v2, users and holders of BTRFLY v1 tokens that migrates to BTRFLY v2 token will be able to lock their BTRFLY v2 tokens as rlBTRFLY for 16–17 week epochs and earn rewards in ETH, including emissions from BTRFLY inflation. Incredible, isn’t it?
These are just a few examples of active real yield projects. Over the coming months, we will begin to see an influx of DeFi projects with the real yield models in the market. It’ll soon become a norm.
I’m predicting that once the DeFi ecosystem gets a full taste of the benefits of real yield projects, there’s no going back. The savior of DeFi is here to stay!
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