Real yields are generated from tangible sources of revenue and are not solely reliant on inflationary token emissions.
This new narrative differs from what was observed during the height of DeFi summer, when astronomical annual percentage yields (“APYs”) were commonplace, and funded by high token emissions.
Yields are likely more sustainable if they are supported by real cash flows from protocols rather than inflationary token incentives.
When evaluating protocols, real yield is just one part of the equation. While protocols can design tokenomics in such a way that token holders receive real yield, the underlying drivers of revenue may be a result of artificial demand and thus, may not be sustainable.
Higher yields are not necessarily better as protocols need to take into account reinvestment needs. A protocol that pays out a higher proportion of fees has less to reinvest back into the protocol.
Investors should also consider profitability to assess long-term viability of the protocol. It does not matter whether a protocol is paying out real yield if it runs at a huge operating loss and is unable to sustain the payout in the long-term.
While a welcome development, at the end of the day, it is unlikely a wise choice to make investment decisions based on a single metric (i.e. real yield) alone.
The Emergence of Real Yield
Binance Research (JieXuan Chua, CFA)
Nov 2nd, 2022