In DeFi, the question I most want to ask isn’t “How much yield is there?” but rather: Whose books does the money users pay end up on? First, spot prices over a rolling 24-hour period: $ETH +1.79%. Over a rolling 24-hour period: $AAVE +0.77%. Over a rolling 24-hour period: $UNI +0.47%. These three figures only show changes in their respective quoted prices. They don’t mean protocol revenue has increased, nor do they prove that token holders therefore receive a share of revenue or other benefits.
Fees and incentives are often lumped together and called yield, but they may actually flow in opposite directions. When users pay to borrow or trade, that generates service fees. Incentives, on the other hand, are rewards offered to attract participants to supply assets. You have to look at each case to see who funds them and who ultimately receives them. The former don’t automatically go to token holders, and the latter don’t mean the protocol has made money. This describes general mechanisms, not the current arrangements of these particular protocols.
You also need to distinguish between stocks and flows. The amount of assets in a pool at a given point in time is a stock; the amount of fees collected over a period of time is a flow. A large pool doesn’t mean high fee revenue, and the existence of fee revenue doesn’t mean token holders are entitled to a share. If someone brings up a governance proposal, you also need to distinguish between what’s under discussion, what’s been approved, and what’s actually been implemented. Don’t present a proposal as if it’s already in effect.
The costs ordinary users actually bear go beyond fees, too. Borrowing can expose you to liquidation risk if collateral prices fall, while providing liquidity can expose you to asset price fluctuations. You can’t guess the specific risk parameters and yield levels based on general knowledge. For me, the most practical questions are: What service am I paying for? Where do the fees go? And who pays for the rewards? If these questions don’t have clear answers, it’s hard to tell what problem the protocol actually solves just by looking at the token price.
Fees and incentives are often lumped together and called yield, but they may actually flow in opposite directions. When users pay to borrow or trade, that generates service fees. Incentives, on the other hand, are rewards offered to attract participants to supply assets. You have to look at each case to see who funds them and who ultimately receives them. The former don’t automatically go to token holders, and the latter don’t mean the protocol has made money. This describes general mechanisms, not the current arrangements of these particular protocols.
You also need to distinguish between stocks and flows. The amount of assets in a pool at a given point in time is a stock; the amount of fees collected over a period of time is a flow. A large pool doesn’t mean high fee revenue, and the existence of fee revenue doesn’t mean token holders are entitled to a share. If someone brings up a governance proposal, you also need to distinguish between what’s under discussion, what’s been approved, and what’s actually been implemented. Don’t present a proposal as if it’s already in effect.
The costs ordinary users actually bear go beyond fees, too. Borrowing can expose you to liquidation risk if collateral prices fall, while providing liquidity can expose you to asset price fluctuations. You can’t guess the specific risk parameters and yield levels based on general knowledge. For me, the most practical questions are: What service am I paying for? Where do the fees go? And who pays for the rewards? If these questions don’t have clear answers, it’s hard to tell what problem the protocol actually solves just by looking at the token price.
