The One True Metric: Real Yields
2 min read
DeFi or Decentralized Finance is a relatively new and rapidly expanding industry that allows users to lend, borrow, and trade cryptocurrencies without the need for intermediaries. Yield farming is one of the most popular activities in DeFi, as it allows users to earn rewards by locking up their assets in yield-bearing pools. However, not all yield is created equal, and investors should look at a project's "real" yield to ensure sustainable earnings. In this blog, we will delve into what real yields are and how to evaluate them.
Real Yields vs. Dilutionary Emissions
Real yield is the yield earned from a project's actual revenue, which covers the amount of tokens distributed to stakers. In contrast, dilutionary emissions come from newly minted tokens that deplete the project's treasury and rely on emissions rather than revenue. This leads to a vicious cycle, where more native tokens have to be given out to offer the same APY, depleting the treasury even quicker. Therefore, investors should focus on projects with sustainable real yields.
Evaluating a Project's Yield
To evaluate a project's yield, investors can use the crypto real yield metric, which compares the project's rewards to its revenue. This helps investors determine how much of the project's rewards are dilutionary and how much are supported by real growth. By using this metric, investors can identify sustainable yield projects that are backed by real revenue.
Reputable Projects with Yield Potential
Investors should look for reputable projects that offer trusted and used services, as these are good starting points for earning sustainable yield. It is also important to understand how to participate in a project's yield farming activities. Providing liquidity, staking governance tokens, and locking native tokens are common mechanisms that investors can use on platforms like Wombat Exchange.
Example of a Project with Sustainable Real Yield
Let's look at an example of an automated market maker protocol that offers yield to holders of its governance token and liquidity provider token. 10% of platform revenue is kept for the treasury, and the rest is split 50/50 between holders of the two tokens in their respective reward pools and paid out in BNB. If the project makes $200,000 in monthly revenue and $90,000 of BNB is distributed to stakers in each rewards pool, the real yield is $20,000. This surplus shows that the yield model is sustainable, and emissions would never be more than revenue.
Survival of Revenue-Generating DeFi Projects
Some DeFi projects may gain users because of their emissions, but as time goes on, they cut back on their emissions and use more protocol-friendly methods. Only revenue-generating DeFi projects with real use cases will survive in the long run. Therefore, it is crucial for investors to focus on sustainable real yields and revenue-generating DeFi projects.
In conclusion, real yields are essential for sustainable earnings in DeFi. Investors should focus on projects with sustainable real yields and evaluate a project's yield by using the crypto real yield metric. Reputable projects with yield potential and real use cases are a good starting point for earning sustainable yield. Surviving DeFi projects will be revenue-generating projects that use protocol-friendly methods in the long run. By focusing on sustainable real yields, investors can earn consistent earnings and contribute to the growth of the DeFi industry.