Real Yield vs Inflation

What is Real Yield

Real Yield is yield that comes from actual protocol revenue rather than token emissions (inflation). It gained attention after the 2022 DeFi bubble as interest in "sustainable yields" grew.

Key question:

"Where does this APY come from? Is it printing tokens or actually earning?"

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Inflation-Based Returns vs Real Yield

Inflation-Based Returns

Characteristics:

• Protocol issues its own new tokens
• Distributed to stakers/LPs
• Token supply increases

Examples:

• Curve: CRV token incentives
• Most liquidity mining

Problems:

• Downward pressure on token price
• Dilutes existing holders
• Unsustainable (token value can converge to 0)

Real Yield

Characteristics:

• Generated from actual user fees
• Paid in "real money" like ETH, USDC
• Protocol generates actual revenue

Examples:

• GMX: 70% of trading fees distributed as ETH/AVAX
• dYdX: Trading fee distribution

Advantages:

• Sustainable
• No token dilution
• Based on real value

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Why Real Yield Matters

2021-2022 Lessons

DeFi 2.0 Collapse:

• OlympusDAO (OHM): 8,000%+ APY → Token price crashed 99%
• TIME Wonderland: Similar collapse
• Countless forks failed

Cause:

• Only source of yield was token emissions
• Insufficient actual protocol usage
• New participants → Pay existing participants (Ponzi structure)

Market Realization

"Unsustainable APY eventually converges to 0"

Investors began prioritizing source of yield over APY numbers.

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Yield Source Analysis

Sustainable Yield Sources

Unsustainable Yield Sources

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Real Yield Protocols

GMX

Model:

• Decentralized perpetual futures exchange
• Trading fee revenue
• Distribution in ETH/AVAX to stakers

Revenue Structure:

• Trading fee: 0.1% (of position size)
• Distribution: 30% protocol, 70% stakers/LPs

APY:

• GMX staking: ~10-20% (ETH/AVAX)
• GLP: ~20-40% (variable)

Advantages:

• Paid in actual ETH/AVAX
• Low token inflation
• Proven track record

Gains Network (gTrade)

Model:

• Leveraged trading on Polygon/Arbitrum
• Synthetic assets
• Trading fees + liquidation revenue

Revenue Structure:

• Trading fees
• Distributed to GNS stakers in DAI

dYdX

Model:

• Perpetual futures DEX
• Order book based
• Fee distribution

Revenue Structure:

• Trading fees
• Distributed to stakers in USDC (v3)
• Structure changed in v4 (own chain)

Synthetix

Model:

• Synthetic asset protocol
• Provide collateral through SNX staking
• Trading fee distribution

Revenue Structure:

• Trading fees from sUSD, sETH, etc.
• Distributed to SNX stakers

Curve/Convex (Partial)

Model:

• DEX fees are real yield
• CRV/CVX incentives are inflation

Analysis:

• Base LP fees: Real yield (~0.5-2%)
• CRV rewards: Inflation (variable)
• Need to verify real yield portion of total APY

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Calculating Real Yield

Basic Formula

Real Yield APY = (Annual Protocol Revenue × Distribution Rate) / TVL

Example: GMX

• Annual trading volume: $100B
• Average fee rate: 0.1%
• Annual fee revenue: $100M
• Staker distribution rate: 70%
• Total staker revenue: $70M
• TVL (staking): $500M
• Real Yield APY = $70M / $500M = 14%

Verification Methods

1. Protocol Dashboards:

• Most protocols publish revenue data
• GMX Stats, dYdX dashboard, etc.

2. DefiLlama:

• Check fees by protocol in Fees section
• Compare Protocol Revenue vs Token Incentives

3. Token Terminal:

• Protocol revenue analysis
• P/S (Price to Sales), P/E ratios

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Breaking Down APY

Example: Curve Pool

Total APY: 25%

Real yield portion: 2/25 = 8%

The remaining 92% depends on token emissions.

Implications

• Check real yield portion rather than total APY
• Actual returns plummet when incentive token prices fall
• Protocols with higher real yield are more stable

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Hybrid Models

Most Protocols

Providing competitive APY with pure real yield alone is difficult.

Common structure:

• Base: Real yield (fees)
• Additional: Token incentives (initial bootstrapping)

Characteristics of Healthy Protocols

Evolution over time:

1. Early: High token incentives to secure liquidity
2. Growth: Actual usage increases, fee revenue grows
3. Maturity: Incentives decrease, real yield portion increases

Checkpoints:

• Competitive fee revenue even without incentives?
• Actual usage (trading volume, loan amounts) growing sustainably?
• Token inflation schedule managed?

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Real Yield Investment Strategies

1. Real Yield-Focused Portfolio

Example composition:

• GMX staking: 40%
• GLP: 30%
• dYdX staking: 20%
• Gains Network: 10%

Characteristics:

• Low volatility (paid in ETH, USDC)
• Sustainable returns
• Low token price dependency

2. Fee Aggregation Strategy

Protocol fee revenue comparison:

*P/F = FDV / Annual Fees (lower = undervalued)

3. Diversified Approach

• Diversify across multiple real yield protocols
• Spread smart contract risk
• Chain diversification (Ethereum, Arbitrum, Solana, etc.)

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Limitations of Real Yield

1. Lower APY

Achieving high APY with real yield alone is difficult.

• Token incentives: 50-1000%+ APY possible
• Real yield: Usually 5-30% range

2. Market Dependency

Returns fluctuate based on protocol usage.

• Bull market: Volume increases → Fees increase
• Bear market: Volume decreases → Fees decrease

3. Token Price Risk

Even protocols offering real yield can see their base token price fall.

• If GMX price drops 50%
• ETH-denominated returns remain
• But token value loss

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Real Yield Evaluation Checklist

Revenue Source:

• Are fees the main revenue source?
• What portion is token emissions?
• Is it attractive without incentives?

Sustainability:

• Is there actual usage?
• Is usage growing?
• Does it have advantages over competing protocols?

Distribution Structure:

• What % of revenue goes to stakers?
• In what token is it paid?
• Are there lockup periods?

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Summary

Real yield is sustainable returns from actual protocol fees rather than token inflation. GMX, dYdX, and Gains Network are representative real yield protocols that pay rewards in "real money" like ETH or USDC. When seeing high APY, you should break down how much is real yield. Token incentive-based APY can plummet when token prices fall, but real yield persists as long as protocol usage is maintained. However, high APY is difficult to expect with real yield alone, and it varies with market conditions.

Next article: Yield Aggregators - Automating Yield Optimization