![]() This devalues users’ still-locked tokens, perhaps much more so than the so-called real yield that users earned, leaving them holding the governance token bag yet again.Īlex O’Donnell, CEO of Umami Labs, the company behind Umami Finance, generally agrees with 0xSami’s concerns. Then, six months down the line, for example, emissions can be set to skyrocket. In this scenario, projects can point to a low emissions-to-revenue ratio as evidence of a protocol’s business viability. Projects can then tout their ETH or USDC-denominated real yield, even though users are accessing that yield by staking a rapidly inflating governance token.ĭelaying token emissions while also requiring users to lock tokens up can be a particularly insidious combination. One is that projects can still emit tokens to attract revenue-generating capital. To 0xSami, optimizing for real yield, even if the APY is in the somewhat reasonable, low two-digit range, runs two main risks. ![]() TVL also doesn’t address how efficiently the capital is being used. The metric is great to signal a protocol’s size, but it can be easily gamed by offering outsized token incentives for user deposits. TVL encompasses the total value of assets locked in a protocol’s smart contracts. “I think in the same way that TVL (total value locked) is a flawed metric, we should not use the ETH APY as the real metric,” he told The Defiant. 7 entitled wolf in sheep’s clothing underscoring the dangers of projects optimizing for real yield. Marketing PloyĪs the concept gains traction, however, some are concerned that “real yield” will become a signalling metric, rather than one which demonstrates the financial health of a protocol.ĠxSami, the co-founder of Redacted Cartel, which is actually among the real yield protocols, is one such skeptic. Now, influencers are lauding projects for their real yield - Redacted Cartel, Umami Finance, Gains Network, GMX, and Synthetix are among those garnering praise for passing revenue on to their users. This is what’s known as yield farming, and the practice proved extremely lucrative in 20. Those returns were broadly fueled by projects’ native tokens, which would be distributed at unsustainable rates in order to attract users’ deposits.ĭeFi users were hopping from project to project, depositing assets for the token rewards, and trying to dump them before everyone else did. The concept of real yield contrasts with the ponzi-esque APYs of 2021, when people barely batted an eye at four-digit yields. ![]() If this sounds like a dividend, you’re not far off.įor many DeFi users left holding governance tokens down 80% or more off all-time highs, cash flow in ETH or stablecoins is a welcome change. Real yield is 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. The latest one is “real yield,” which, like the DeFi trends before it, is being touted in both substantive and vaporous ways. Whether it’s DeFi 2.0 or ultrasound money, crypto loves its narratives. ![]()
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