Finance
2 min read

Yield

The income return on an investment, expressed as a percentage of cost or current value. Bond yields, dividend yields, and DeFi yields all describe how much income an asset generates relative to its price.

How yield is measured

Common metrics:

Comparing yields requires consistent metrics.

Sources of yield

Various:

  • Bond interest — coupon rate on debt.
  • Dividends — corporate distributions.
  • Bank interest — savings, CDs, money markets.
  • Staking — rewards for securing PoS networks.
  • Lending — interest from DeFi lending.
  • Liquidity provision — fees from AMMs.
  • Yield farming — token rewards for participation.

Each has different risk-return profiles.

Yield in traditional finance

Typical ranges:

  • Savings accounts — near zero historically; varies with rates.
  • CDs — modest premium over savings.
  • Treasuries — risk-free benchmark.
  • Corporate bonds — higher yields with credit risk.
  • High-yield bonds (junk) — substantially higher with default risk.
  • Dividend stocks — variable; quality varies.

Higher yield typically means more risk.

Yield in crypto

Often higher than TradFi:

  • Stablecoin lending — ranges from low single digits to 20%+ depending on conditions.
  • Staking — typically 3-10% on major chains.
  • LP fees — variable; often offset by impermanent loss.
  • Yield farming — can be triple digits but typically dilutive.
  • Restaking — adds yield layers but adds risk.

Crypto yields reflect crypto risks.

Sustainable vs. unsustainable yield

Critical distinction:

  • Sustainable — comes from actual fees, real economic activity.
  • Unsustainable — comes from token emission, dilution, or unrealistic mechanics.
  • Anchor (UST) — 20% yield famously collapsed.
  • Real yield — discussion focuses on protocols generating real revenue.

Yields too good to be true usually are.

Yield risk dimensions

Various risks:

  • Credit risk — borrower default.
  • Smart contract risk — protocol exploits.
  • Token risk — yield denominated in volatile token.
  • Liquidity risk — can't withdraw when needed.
  • Slashing risk — staking penalty.
  • Counterparty risk — for centralized yield products (Celsius, BlockFi failed).

Yield should be evaluated against all these dimensions.

Yield farming evolution

Recent history:

  • 2020 DeFi summer — astronomical farming yields.
  • Yield decay — emissions diluted, yields fell.
  • More-sustainable focus — real yield, fee-sharing.
  • Restaking and points — current yield-seeking patterns.

The pattern: high initial yields decay as participants pile in.

What individuals should know

For yield seekers:

  • Compare like-for-like — APY, net of fees, with similar risk.
  • Question source of yield — sustainable or token-emission?
  • Risk-adjusted matters more than nominal.
  • Chase carefully — high yields often precede losses.
  • Diversify across yield sources.

For investors:

  • Real yield — protocols generating genuine fee revenue.
  • Token-emission yield is essentially dilution.
  • Risk premium — high yields compensate (sometimes inadequately) for high risk.

Yield is a fundamental concept across traditional and crypto finance. Understanding sources, sustainability, and risks is essential to evaluating yield opportunities sensibly.