- Real yield from cryptocurrencies is the payout in main crypto coins other than the tokens of the same protocol.
- So, investors may avoid inflationary side effects.
- But the source of the yield must be a regular, sustainable earning, the result of successful business activity.
Real yield from cryptocurrencies is one of the new narratives in the crypto industry in 2022. It has a different meaning than in traditional finance (TradFi), where the real yield is the return we reach above or below the customer price inflation.
What Is The Source of The Real Yield?
But how is it even possible to reach something like yield with such a speculative asset like cryptos? The answer is simple. Many protocols—complex smart contract systems on the blockchain—are working similar to companies. They have revenues, and earnings, so they can pay a part of the earnings to their investors (token holders). Like dividends in the traditional enterprise world, this can provide a nice passive income for investors.
Real Yield = part of the revenue of a project paid to token holders, but not in inflationary tokens.
Unfortunately, many protocols were or still are paying their yields in their cryptocurrency. That increases the number of tokens in circulation, and diluting the token supply. This practice causes high inflation and may lead to the continued depreciation of their cryptocurrency. That is definitely not the real yield we are talking about.
Stable Income in Hard Cryptocurrency
We can define the real yield of cryptocurrency projects as the case when the protocol pays out in a “hard currency”. Or, sound money, like high-capitalization, low-inflation, and “blue chip” coins. Such cryptos may be Ethereum, Avalanche (AVAX), Polygon (MATIC), or dollar-pegged stablecoins like DAI, USDC, and USDT. The source of the payout must be a real earning. A sustainable cash inflow that is the result of a successful business operation.
Examples of cryptocurrency businesses with stable incomes are DEX-es (decentralized exchanges). Because trading one crypto for another always costs some transaction fees. (Similar to brokerage transaction fees in traditional finance). Another example is NFT trading platforms, which apply similar fees to customers. These business models are nothing new—they have hundreds of years of history. (As old stock exchanges are.)
Real yields are also called real revenues, real money, or DeFi 2.0 in some posts.
Which Crypto Projects Pay Real Yields?
Analysts mention the following seven protocols in Twitter and blog posts as real-yield-bearing assets. (Or, shill them.) But the list is far from complete—and please do your research.
- GMX (GMX and GLP tokens)
- GNS (various pools)
- Synthetyx (SNX)
- Dopex (DPX)
- Redacted Cartel (rlBTRFLY)
- LooksRare (LOOKS)
- Umami (UMAMI)
In many cases, the return for staking the protocol’s tokens comes in a part from an inflationary token. Only in another part from the trading fees.
Is Real Yield from Cryptocurrencies The Future?
Many authors praise the real yield of cryptocurrencies as the future of DeFi. Because the earlier, unsustainable inflationary model is transforming into a new, sustainable one. Others point out that the concept is not new at all, has been around for a long time. All DeFi (decentralized finance) products based on a trading fee income provide real yields in the crypto space. So does the market leader, Uniswap, and its clones with their liquidity pools. But, the risks are also higher by these strategies than by simple (one-sided) token staking.
Caveats and dangers of the real yield hype are also present. Cryptocurrency projects should be profitable to be able to pay out. But most new protocols are not generating any earnings. Distributing large sums of money to token holders drains cash reserves that they could use for development. (Similar to “cash cow” companies in the traditional stock market. Which pay high dividends but have low to zero growth chances).
I’m not a certified financial advisor nor a certified financial analyst, accountant, nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, do your proper research or consult your advisors before making any investment or financial or legal decisions.
At the time of writing: I’m long in Bitcoin, Ether and many other cryptocurrencies.