Market MakingVenture CapitalAbout Us

Real Yield - new DeFi narrative

Nov 24, 2022
/Table of contents


While Centralized exchanges continue to lose their stability and trustworthy applied towards them, decentralized sector of crypto receives more newcomers and sets new trends, increasing its potential throughout the time. One of the latest DeFi topics highly discussed across Twitter users is called “real yield” and has a chance to form a new narrative. In order to understand it, let’s deepdive into this sphere with GotBit!

First things first, let’s define the “real yield” — it is a share of a protocol’s revenue, mostly in stables or main coins (ETH, BTC), which can be accessed and received in the proportional size of a protocol’s governance tokens by locking or staking them. At some point, it has some similarities as the dividend of a stock.

Usually governance tokens allow users to take an advantage in deciding the direction of where the project to step in, and with the price reach of their ATL, token does not usually seem as a desired investment. But comparing this with the ponzi-esque APYs, we can find a definite contrast in terms of returns: while the first provides a revenue in practically applied assets, the second pays off with the native token, and this navigates to the impermanent loss risk alongside with the downtrend of the native token price.

Controversials upon the concept

As the famousity of the concept began to grow, community started to see it as the metric that can define the success of such projects, which brings concerns upon well-known projects. The article called “Wolf in sheeps clothing” greatly discuss the problem of community mislead and attempt to “sew mare’s tail”, applying metrics as the mere of what it should not be. As such, we can use TVL as a great example, which actually shows the protocol’s size, but not define the efficiency of capital project gained. As for the proof we can use SolChics experience of worthless spend of money, when the CEO, which had a sole access to capital raised, lost almost everything on LUNA investment and BTC & ETH trading, leaving the company with only $400,000 from $20,000,000.

One of key-opinions is held by 0xSami, founder of Redacted Cartel, stating that “real yield” revenue, even if it is located in the area of two digits, still remains with two main risks, staying one upon another:

  • Projects are still able to emit tokens to attract more capital, which enables projects to state their “real yield” in ETH or USDC, even though users are accessing that yield by staking a rapidly inflating governance token. Shortly saying, if the emission would be set to highly-valued emission, it would lead to the devaluation of locked governance, leaving people with worthless amount of tokens;
  • As metric increases in popularity, projects would need to adjust below it while still managing to gain the capital to fund new developments and pay off their employers. Since most of existing companies are still in their early stage of maintenance, their choice should fall into the reinvestment in itself to expand rather than paying dividends to incencivize token holders. Instead, projects can allocate a small amount of capital into the “real yield” as the form of small short-term encouragement rather than a constant revenue share.

Which token should i take a look to know more about Real Yield?

The answer is all on the top weekly RealYield distribution (in million $):

Looking at the NET revenue, it looks like $CAKE $CRV $SNX $CVX and maybe $LDO are gonna print their tokens into the ground, UNLESS

  • they have an amazing catalyst coming up or
  • they are growing at Figma-like speeds

So i’d be cautious buying any thing losing money

We would be likely to say that DeFi crypto sector is still a place that has a fragile amount of trust, and “real yield” is mostly a recovery from the loss of trustworthy community around projects, tempted by such projects as Terra, Celsius and others that broke DeFi’s reputation. As the conclusion, we should highlight the thought of rational use of this instrument by various projects. Before we can completely adopt the feature of “real yield”, the focus should be shifted from just making money and attracting short-term community members to the optimization of long-term usage of such instrument and have a right contextualization of this metric so we can logically input that into the built ecosystem.