Real Yield vs Fake Yield in Defi 2023 - Is Crypto Over
Welcome to our article on Real Yield and Fake Yield in the DeFi space. As DeFi continues to evolve, it's becoming increasingly important to differentiate between sustainable and unsustainable yield farming strategies. Real yield is a powerful metric that can help investors identify projects with truly sustainable returns, while fake yield can be a warning sign of manipulative strategies and unsustainable token emissions.
In this article, we'll explore the world of DeFi and take a closer look at the growing trend towards Real Yield. By understanding the key differences between real and fake yield, you can make more informed investment decisions and help support the long-term growth and stability of the DeFi ecosystem. So let's dive in and discover why Real Yield is poised to become a major trend in DeFi in 2023.
What is DeFi Yield?
DeFi Yield refers to the interest or return generated from participating in DeFi protocols. Decentralized Finance (DeFi) is a system of financial applications built on top of blockchain networks that aim to provide a decentralized alternative to traditional financial services. One way of generating yield in DeFi is through yield farming, also known as liquidity mining, which involves staking or locking up assets in a smart contract in exchange for rewards in the form of tokens or fees generated by the protocol.
Yield farming is a new trend in DeFi that lets crypto investors put their crypto assets to work and earn high returns. The goal of yield farming is to generate the most returns possible on the crypto assets by moving them around within different protocols and liquidity pools.
Real yield and fake yield are two different concepts in DeFi Yield, with real yield being a sustainable yield based on a protocol's revenue, while fake yield is unsustainably generated through manipulative strategies.
Real Yield vs Fake Yield?
Real yield is based on the sustainable revenue
Real yield is a more practical approach to yield farming because it is based on the sustainable revenue generated by the protocol. This revenue primarily comes from fees for a service offered]. The calculation of real yield is straightforward and can be calculated by subtracting the cost of token emissions from the total revenue generated by the protocol.
To illustrate the mechanism of real yield, let's consider a DeFi protocol that offers a lending service. Users can lend their cryptocurrency assets on the platform and earn interest on them. The fees generated from the lending service form the revenue for the protocol. The protocol can distribute a share of this revenue to the users in the form of real yield. The real yield is calculated as the revenue generated by the protocol minus the operating expenses, and the remaining amount is distributed to the users.
Fake Yield is generated through manipulative strategies
In contrast, fake yield refers to yield farming strategies that rely on unsustainable token emissions and other manipulative strategies. These strategies may offer high returns in the short term, but they are not sustainable in the long run. They often lead to a decline in interest in governance tokens.
For example, a protocol can offer high staking rewards in the form of governance tokens to attract users, but the tokens' value decreases due to excessive token emissions. This results in the erosion of the users' returns and an overall unsustainable yield model.
How does Real Yield work?
Real Yield is a new trend in decentralized finance (DeFi) that is gaining popularity. It allows investors to earn high yields on their investments by providing liquidity to DeFi protocols. Real Yield refers to a share of a protocol's revenue, denominated in a mainstream asset like ETH or USDC, which holders of a protocol's governance tokens can access by staking or locking them.
Example 1: GMX
One example of a project that offers Real Yield is GMX, a decentralized exchange project on the Arbitrum blockchain. GMX offers a unique real yield and tokenomics model where liquidity providers earn GMT tokens for providing liquidity to the exchange through token pairs GMX and GLP, while traders pay transaction fees in GMX tokens. The platform's revenue is distributed among GMX and GLP token holders based on their stake in the platform.
At the time of writing, GMX offers an annual percentage rate (APR) of 5.49% for staking GMX tokens and 25.95% for staking GLP tokens. However, these numbers are updated weekly based on the fees collected for the week, and there is also a boosted yield during the vesting period. 70% of the revenue is paid to GLP holders, while GMX stakers get the other 30% paid out in ETH. This real yield model provides an opportunity for investors to earn high yields by providing liquidity to DeFi protocols.
Example 2: Dopex
Dopex refers to Decentralized OPtions EXchange that offers users the ability to buy or sell options contracts and passively earn real yields.
Dopex's flagship product is its Single Staking Option Vaults, which provide deep liquidity for option buyers and automated, passive income for option sellers. These option pools let anyone buy or sell options in a capital-efficient and simplified manner
Dopex collects fees from its products, then distributes a part to DPX token holders based on their stake in the platform. The rest of the fees will be reserved for a buyback-and-burn model. This model uses profits to buy back the project's native token and burn it, reducing the token supply.
How will Real Yield become the new trend in Defi?
Real yield has already gained significant attention in the DeFi community and is being seen as a potential game-changer for the industry.
Real Yield deals with the unsustainability and provides a way to mitigate the risks
Firstly, Real Yield deals with the unsustainability in DeFi by providing a more sustainable model for generating returns, which is based on sharing protocol revenue with investors who provide liquidity to the protocol. Real Yield also provides a way to mitigate the risks associated with DeFi, such as the risk of losing all funds due to smart contract vulnerabilities, rug pulls, or liquidity crises
Real Yield protocols typically have measures in place to mitigate smart contract vulnerabilities, rug pulls, or liquidity crises. One way this is achieved is through auditing the smart contracts by third-party firms to identify and fix any vulnerabilities before deployment. Additionally, protocols may implement safeguards such as limit orders, circuit breakers, and emergency shutdown mechanisms to protect against market volatility and mitigate liquidity risks.
To prevent rug pulls, Real Yield protocols, such as GMX or Curve, often require liquidity providers to lock their tokens for a certain period, ensuring that they cannot quickly withdraw all their funds and leave the protocol vulnerable.
Moreover, some protocols, such as Uniswap or Aave, also use community-led governance models to ensure that decisions are made in a transparent and decentralized way, giving stakeholders a say in the protocol's development and governance.
Real Yield will push DeFi into the mainstream in 2023
As DeFi 2.0 protocols started collapsing one by one, the need for a new sustainable economic model became evident, and real yield emerged as a solution to this problem. Real yield is being viewed as a more transparent and reliable model that can attract mainstream investors to DeFi protocols.
Real yield has the potential to push DeFi into the mainstream, as it offers a more sustainable economic model than the high APYs offered by many DeFi protocols in the past. Real yield could also help DeFi gain more adoption and legitimacy by attracting institutional investors who may be more interested in stable returns than high-risk, high-reward investments.
In conclusion, Real Yield is a new trend in DeFi that provides a sustainable economic model for generating returns and mitigating risks. It's increasingly essential to differentiate between sustainable and unsustainable yield farming strategies to make informed investment decisions and support the long-term growth and stability of the DeFi ecosystem. By providing a more transparent and reliable model, Real Yield has the potential to push DeFi into the mainstream and attract mainstream investors to DeFi protocols. Stay tuned for more exciting developments in the DeFi space as Real Yield continues to gain traction in 2023!