Evaluate if Your DeFi Yield is Real or Hype 🤔
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Unpacking Crypto Real Yield for Long-Term DeFi Viability.
Are you tired of hearing about eye-watering returns in the DeFi world? It's okay to be skeptical when you come across offers that sound too good to be true. Lucky for you, I've got a handy metric that can help you evaluate the real deal from the fake: crypto real yield.
Yield farming has been all the rage lately, and it's not hard to see why. You can earn crypto rewards by locking up your assets in yield-bearing pools, and there are different ways to do it. But not all yield is created equal. Some projects offer crazy high APYs, often incentivizing with their native token. When these APYs drop, users can rush to sell the farmed tokens, which can cause token prices to plummet. This is where crypto real yield comes in handy.
Crypto real yield is a metric that allows you to see how much of a project's rewards are dilutionary, meaning they're mainly supported by token emissions rather than funded by revenue. In other words, it helps you evaluate whether the yield offered is sustainable or not.
Think of it as dividends in the stock market. If a company is paying out dividends to stockholders that are unsupported by corresponding revenue, it's obviously unsustainable. For DeFi projects, revenue mainly comes from fees from a service offered. So, if the project's revenue covers the number of tokens distributed to stakes, the yield is "real," and the project's own funds aren’t being drained.
The crypto real yield metric is calculated by comparing a project's offered yield against its revenue. If the returns for staking are greater in real terms than the provided interest, the emissions are dilutionary. This means that their yield isn’t sustainable or, in lay terms, "real." It's a quick and easy calculation that can give you an idea of whether a project's promises are feasible or not.
To ensure your DeFi yield is real, you'll need to find a reputable project that offers a trusted and used service. Look at the project's yield potential, and understand how exactly you participate. You may need to provide liquidity to a protocol or stake its governance token in a pool. Locking native tokens is also a common mechanism. Once you've found a project and understood its mechanism, remember to check the project’s real yield using the formula above.
Keep in mind that real yield isn't necessarily better than dilutionary emissions, which are often used for marketing purposes. However, this indicator can serve as a useful tool for gauging a project's long-term yield-bearing prospects.
Stay safe, stay savvy, and have happy yield farming! 🍀
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