By Nathan Ferguson
Investors in the crypto industry are fascinated by the APYs often appearing in decentralized finance. Real yield is among the most popular methods used for evaluating the expected yield of any project. It is an efficient process that allows traders to calculate the yield of their projects quickly and conveniently.
In this guide article, we will learn about yield farming and real yield. In addition, readers will also come to know about the improvements made by yielding real yield in DeFi projects.
Understanding DeFi Yield Farming
Users lock up their assets in yield-bearing pools and earn rewards in return. This process is known as yield farming. Yield farming includes multiple methods, such as staking, liquidity pools and protocol lending. When users utilize their assets in work, all these methods generate a reward in return.
The rewards offered for yield farming increased as the market hype increased. As a result, the APYs produced become highly unsustainable. The emissions of these tokens increased their demand instead of their utility. The real yield in crypto helps calculate the project’s interest and actual value.
Difference Between Real Yield and Dilutionary Emissions
It is sustainability when it comes to describing the reality of a yield. The own funds of the project will not be drained if the revenue generated through a project covers the number of tokens it distributes. The revenue remains constant if a project maintains the same APY.
On the other hand, in dilutionary emissions, the treasury is depleted, which makes the APY unsustainable in the long run. Maintaining the APY is challenging if a project’s revenue does not increase. The price of the tokens might decrease as stakers sell them in the market. Therefore, to compensate for the APY, more local tokens have to be released, leading to a faster depletion.
Understanding Crypto Real Yield Metric
Calculating the real yield in crypto is an efficient way to calculate the revenue generated through any project. It differentiates by the dilutionary rewards for a project and the ones the token supports.
However, APY is mainly dependent on dilutionary emissions. One might think of real yield as the dividends in the stock market. The revenue in blockchain projects is generated through the fee offered by the service. However, it can be the transaction fee in the case of the AMMs.
Is DeFi Yield Real?
Finding a trustworthy and reliable service to earn a stable yield is essential. The next step is determining how to participate in a project and its yield potential. For this purpose, the user must stake a token or provide liquidity to the system. After finding out a reputable project, the real yield of the project should be calculated.
The yield in AMM is calculated in two ways, through the governance tokens or the liquidity provider token. A percentage in the treasury is stored as revenue. The rest is then distributed equally among the two tokens. It is guaranteed by the tokenomics model of yield distribution that emissions should never surpass the revenue generated.
It increases the importance of choosing a reliable decentralized finance project that operates on a sustainable distribution model. It assists in the precise calculation of the real yield associated with the project.
Does Real Yield Improve Decentralized Finance?
In the past years, emissions have successfully increased the number of users. These projects operate with stable and sustainable models by tapering their emissions. Depending on the emissions is not entirely unsustainable. Similarly, one should not only look for a good value of real yield. However, the future holds several decentralized finance projects that can be used for generating revenue in the long run.
Conclusion
Decentralized finance projects should learn from the projects in the past and deploy features that ensure sustainability and maximum revenue generation. However, users should also learn the role of emissions in achieving stability for a project and increasing the number of users.