There’s a question in DeFi that often gets overlooked: who is actually paying the yield? Interest paid by borrowers, fees paid by traders, and token incentives issued by a protocol are not the same money. The first two may come from real usage; incentives may be subsidies. Blend them into a single APY, and no matter how attractive the number looks, you still can’t tell whether it’s sustainable.
Binance spot rolling 24-hour performance: $ETH +0.93% (24 hours); $AAVE +0.15% (24 hours); $UNI -0.04% (24 hours). This only records changes in token prices. It says nothing about whether protocol revenue is rising or falling, and certainly doesn’t mean token holders receive a share of fees or any other benefits.
Take lending: borrowers paying interest doesn’t mean all of that interest goes to the protocol; returns for liquidity providers also depend on the specific rules. Likewise, traders paying fees doesn’t mean UNI holders automatically get a cut. Where the money goes and who decides how it is distributed depend on the protocol’s rules and governance arrangements. A proposal is just a proposal—it shouldn’t be treated as already implemented.
I separate “stock” from “flow”: the amount of capital in a pool is its stock at a given point in time; the amount of borrowing, trading, and fees generated over a period of time is the flow. A large pool doesn’t guarantee continued usage. If incentives stop and real demand doesn’t take their place, the apparent yield may shrink. Conversely, subsidies can attract usage, but that alone doesn’t prove the business model works.
So, more useful than asking whether the yield is high is asking: Who is paying? How are fees distributed? How much demand will remain if incentives are reduced? And who bears the liquidity, lending, and smart contract risks? There’s a record of how prices moved over these 24 hours; to find out where the yield comes from, you have to break down the books.
Binance spot rolling 24-hour performance: $ETH +0.93% (24 hours); $AAVE +0.15% (24 hours); $UNI -0.04% (24 hours). This only records changes in token prices. It says nothing about whether protocol revenue is rising or falling, and certainly doesn’t mean token holders receive a share of fees or any other benefits.
Take lending: borrowers paying interest doesn’t mean all of that interest goes to the protocol; returns for liquidity providers also depend on the specific rules. Likewise, traders paying fees doesn’t mean UNI holders automatically get a cut. Where the money goes and who decides how it is distributed depend on the protocol’s rules and governance arrangements. A proposal is just a proposal—it shouldn’t be treated as already implemented.
I separate “stock” from “flow”: the amount of capital in a pool is its stock at a given point in time; the amount of borrowing, trading, and fees generated over a period of time is the flow. A large pool doesn’t guarantee continued usage. If incentives stop and real demand doesn’t take their place, the apparent yield may shrink. Conversely, subsidies can attract usage, but that alone doesn’t prove the business model works.
So, more useful than asking whether the yield is high is asking: Who is paying? How are fees distributed? How much demand will remain if incentives are reduced? And who bears the liquidity, lending, and smart contract risks? There’s a record of how prices moved over these 24 hours; to find out where the yield comes from, you have to break down the books.