What is Real Yield? The future for DeFi! =

Decentralized Finance, better known as DeFi, would be the solution for the further decentralization of crypto. No more banks, central exchanges or brokers that have power over your money. No identification obligation, also known as KYC, know your customer.

Everything in-house, once again in control of your finances. But the unprecedented success soon took on a bitter aftertaste . Is 2022 the tipping point for DeFi? Projects like Terra and Celsius have done quite a bit of damage to DeFi’s reputation. Is there still enough confidence in DeFi and above all: are there still big profits to be made here, as we are used to from DeFi? What about the unprecedented APYs and generous rewards? The latest trend in the world of DeFi: Real Yield.

View quickly

 

  • View quickly
  • Current issues of DeFi
    • Yield farming a Ponzi scheme?
    • Sustainable investment in a protocol
    • Back pulls
    • metrics
  • What is Real Yield?
  • Why is there a need for Real Yield?
    • Caveats Real Yield
      • Profitable
      • Less resources for the team
  • Real Yield Protocols
    • GMX
  • Conclusion

Can’t wait? Then watch the video below about how Real Yield is changing the world of DeFi.

 

Current issues of DeFi

DeFi, a place often referred to as the Wild West. The paradox is immediately apparent: blockchain technology was born with the ideology of eliminating the middleman. But what if we use central exchanges and brokers. To what extent does this conflict with one of the basic principles of crypto? From this ideology, DeFi gained more and more attention from the general public. By means of your own software wallet such as MetaMask, TrustWallet or a Ledger, you can trade completely autonomously. Without these central exchanges. So you are completely independent to act. Sounds like music to your ears, right? If you can also earn a lot of money through sky-high interest rates, it’s almost too good to be true. But the reality is not always rosy.

Yield farming a Ponzi scheme?

Yield farming is incredibly popular thanks to the high interest you can earn on various decentralized exchanges (DEXs). But the concept of real returns contrasts with the interest rates paid in 2021. APYs of 10,000% to even 100,000% or millions were no exception. Of course, this percentage decreases as liquidity in the protocol increases. The art? Join a new yield farm as soon as possible and enjoy these amazing returns. These returns were largely fueled by their own native tokens, with or without a trading pair in Bitcoin or Ethereum, or a stablecoin.

DeFi users moved from project to project to maximize their profits. How? By trying to dump their tokens early, just before everyone else did. Extremely lucrative for early investors. But for those who acted just too late? They saw their profits evaporate because of the falling APYs. It is therefore often compared to a ponzi scheme. Who determines these percentages and are they sustainable?

The tokens of the protocols are inflationary, which means that they create new tokens to pay you with them. Of course, this only works if the demand for the token increases proportionally with the new issuance of the token. If this is not the case, then demand falls and the value of the token enters a hyperinflationary state where the value plummets . This is because more tokens are coming onto the market, while the demand for these tokens is falling.

A recurring warning in the world of DeFi is therefore impermanent loss. Have you added liquidity to a new protocol, for example with BTC or ETH. Then always take your impermanent loss into account and decide for yourself when you take your loss or at how much profit you get out.

FGC/Shutterstock.com

Sustainable investment in a protocol

The purpose of these high APYs is to attract as many investors as possible . By investing in a project on a large scale, the value of the project will increase and the token price will also increase. But how sustainable is this investment if it is done purely to make short-term profits thanks to these APYs ? There is a need for a sustainable way to reward investors for their contribution. Is Real Yield the Solution?

Back pulls

In a completely central environment, you, and only you, are in charge. The bank of your own finances, and also responsible for the potential risks. Decentralized also means that everyone can launch their own DeFi protocol. Despite the various audits by recognized parties, not everyone has the same good intentions.

Add liquidity to a protocol and get rewarded with insane APYs. Things often go well, until sufficient liquidity is available. And then? The great disappearing act, better known as a back pull. Bye crypto, bye money, bye everything.

metrics

There are plenty of metrics investors look at to see the size of a project. A popular metric here is Total Value Locked (TVL). This is the total amount deposited in a decentralized protocol. According to critics, this metric is insufficient, it only indicates how large a project is. It also provides no information about how efficiently the capital is used. Want more valuable metric? Then be sure to view data in Token Terminal.

What is Real Yield?

Real Yield is a new way to reward investors for their contribution to the protocol. It’s a new model to raise liquidity for their protocol. So Real Yield revenue is revenue from “real” revenue from DeFi protocols, in such a way that the profit comes from a truly sustainable business model. A model that encourages investors not to withdraw their money in order to realize a sustainable ecosystem.

By staking native tokens or locking them into the protocol for a certain time, investors receive rewards. This is part of the protocol’s revenue, the more successful a protocol, the better the profits for any investor. This method can be compared to a dividend. As a result, they return real value to the investor. This by, among other things, also distributing a portion of the traded transaction costs to the investors.

emojoez/Schutterstock.com

Why is there a need for Real Yield?

The current way of accumulating liquidity through these sky-high APYs is anything but sustainable. And trust? That has now been severely damaged by projects such as Luna and Celcius. Investors are otherwise not or hardly interested in the project, but only invest to get away with hefty interest in the short term. And these profits paid out in native tokens? They are just as quickly exchanged for other coins. As a result, these new tokens are very volatile and their future is very uncertain.

The price is determined by supply and demand. When the price of new protocol falls drastically in a very short term, to what extent are there still investors who can make up for these losses? If a whale immediately retreats, it could just be the end of the story. And the other investors? They are left with huge losses.

Caveats Real Yield

This new form of providing liquidity is also not a perfect model. There are a few caveats:

Profitable

Thus, protocols must be profitable initially before they can return to their investors. So for new projects this will be a much more difficult way to provide liquidity. For them, paying out these high APYs is a way to get a lot of liquidity in the short term.

Less resources for the team

By handing over part of the proceeds and revenues to the investor, the team itself has less income. A side note or remark is that projects must have sufficient financial resources to research the market and to develop further. Is this sustainable for start-up projects that are just profitable? Do they still have sufficient financial resources to grow to keep the project sustainable and healthy?

Sanook.pic/Shutterstock.com

Real Yield Protocols

Several projects have since switched to this new, sustainable model. Let’s take a quick look at them to GMX:

GMX

GMX is one of Abritrum’s dApps with a Total Locked Value of no less than USD 250 million. The protocol consists of two different currencies. GMX is the utility and governance token and GML, the liquidity provider token. With GMX, holders get 30% of the fees, both through swaps and leverage trading. GLP holders get the other 70%. Both are paid out in Ethereum, because Ether has a relatively reliable long-term value. If we are to believe GMX’s website, both GML and GMX earn over 19% APR on Arbitrum.

Conclusion

Decentralized Finance (DeFI) would become the all-defining future. Completely independent, without central parties or services, trade and make nice profits. Thanks to the unprecedented APYs, many people have made a lot of money. But in addition to the various back pulls, we have seen in 2021 that this form of DeFi is not so rosy after all.

These sky-high interest rates are anything but sustainable, in fact: due to the inflationary nature, these (new) protocols do not have a good future. Investors come on board with only one goal: to maximize their investment and to leave the ship in time. The result? The price plummets, while the protocol continues to release tokens thanks to these percentages. The project ends up in a negative spiral, from which it cannot get out.

DeFi must be sustainable again. Real Yield’s new model allows DeFi projects to raise capital again and gain sufficient liquidity over the long term . A sustainable method, beneficial for both the project and the investor. No generous APYs, but grow collectively with the protocol.

Are you looking for more information or do you have any questions about Real Yield, De-Fi or other cryptocurrencies? Or would you like to meet other crypto enthusiasts? In the free Discord channels of our product Money Mastery from AllesOverCrypto you can ask questions and talk to thousands of other crypto enthusiasts. Do you have other crypto related questions? The easiest way is to look up your question in our FAQ. What you can also do is that you google your question + AllesOverCrypto. Please let us know what you think about MCDEX.

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