Where do yields in DeFi come from?
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- The Illusion of Simplicity: Everything starts with a rosy picture: dashboards display sky-high annual yields (APY), accompanied by a one-click “Deposit → Earn” process. Protocols often provide minimal explanation, leading users to believe this is an easy and risk-free form of “passive income.”
2. Displayed Yields vs. Actual Yields: The truth beneath the surface is far more complex. The APY figures you see are often misleading because they haven’t subtracted various “hidden costs”: Impermanent Loss: When asset prices fluctuate sharply. Execution friction: Gas fees, slippage, and rebalancing costs. Net Profit: After accounting for all of this, the actual yield is often much lower than the advertised figure.
3. The True Source of Yields: Sustainable yields don’t just appear out of nowhere; It must come from real economic value: Transaction fees & Lending activities: Revenue from actual users. Arbitrage & Liquidation: Profit from keeping the system stable. Incentives/Emissions: This is a source of “temporary” yield, often used to attract users but not sustainable in the long term.
4. The Concept of Hidden Value Transfer In DeFi: There is an unwritten rule: If you don’t understand where the yield comes from, you are subsidizing the system. Providing liquidity without understanding the risks means you are bearing the volatility so that professional traders can benefit. You participate without simulating the outcome, and that’s when value is transferred from your pocket to the pockets of those who are more knowledgeable.
5. Why are the results different? The same system, but the results obtained are completely different: Average users: Often optimize based on the highest displayed APY (chasing after virtual numbers). Organizations & Experts: They analyze cost structure and model risk before deploying capital. The difference lies not in the amount of money, but in the understanding.
6. Shift towards Yield Engineering: DeFi is evolving from “chasing yields” to designing yields. Instead of hoping for luck, modern investors focus on: Modeling expected outcomes. Proactive risk management. Optimizing net profit instead of raw numbers.
7. Concrete Vault Infrastructure: Concrete Vault was created to realize this engineering mindset. It helps users shift from guesswork to a structured approach through: Automated allocation: Finding optimal positions based on algorithms. Strategy management: Automatically rebalancing and minimizing manual operation errors. Friction reduction: Optimizing transaction costs for users.
8. Core message: Yield is not just a number. Completely change the way you view DeFi with the formula: $$Yield = Revenue — Costs — Risk_Adjusted$$Actual yield is Revenue minus Costs, then adjusted for risk. When you understand this, you are no longer “subsidizing” the system, but become the master of your own financial game.
