DeFi fundamentally emphasizes the move away from traditional, centralized financial institutions and towards a peer-to-peer financial system.
Platforms for lending and borrowing as well as tokenized digital money and stablecoins have been successfully established by the ecosystem. The DeFi environment has evolved over time into a vast network with built-in financial instruments and protocols.
The Ethereum network hosts most DeFi apps today, but several new open networks are gaining popularity due to their greater speed, scalability, security, and affordability.
Millions of users are benefiting from the evolution of DeFi into a full ecosystem of functional applications and protocols. Corresponding DeFiLiamaAs of August 2022, DeFi ecosystems had approximately $61.7 billion worth of assets, making it one of the fastest growing areas of the public blockchain space.
However, investors have found that several projects offer significant inflation stimulus, lowering the price of their tokens without providing any long-term benefits. The current bear market and catastrophic collapse of stablecoin Terra has highlighted the flaws of the current DeFi ecosystem
This has led people to start paying more attention to the “real yield” method, which rewards stakeholders based on recent earnings.
Real revenue is the percentage of a protocol’s revenue that can be earned by staking or locking its governance token. The system distributes revenue to users in the form of a dominant token (ETH/USDC). This is a DeFi 2.0 protocol.
If there is a real return, users share in the platform’s earnings and are paid with the tokens they want. This means that the higher the earnings from a cryptocurrency project, the higher the yield offered to users
Why real returns?
Real Yield is a game changer as it differs from traditional DeFi of user acquisition, where exorbitantly inflated unsustainable annual returns (APR) are provided to clients to increase the number of user funds deposited. (TVL)
Although these returns seem so attractive to traders, these rates could only be sustained through “falseyield” or token issuance. In other words, they have to create new tokens from scratch and pay out rewards for those tokens that they don’t want or can’t grow. Most of them farm and discard it until it reaches zero.
With many projects lacking effective mechanisms to build real value, their tokens fell to all-time lows as the cryptocurrency market showed signs of weakening. As long as a token’s price continues to rise, it supports its APR
In most cases, the price stops rising and then starts falling. Because of this, many DeFi users began flipping between projects, investing assets for token rewards, and racing against the clock to sell their assets before they fell in value or were sold by everyone else.
Investors are deterred by the token’s fall in value, which accelerates the extinction of the ecosystem.
Higher inflation emissions/APR are not required for a project to qualify as Real Yield. They are projects dedicated to the idea of creating value and applying cumulative methods, backed by a real, consistent and universally engaged user base.
The ability to attract new users and increase revenue generation over time to compensate token holders is a prerequisite for the growth of cryptocurrency companies focused on real returns.
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This is how you identify real income projects
- Use online tools: Messari and Token Terminal are the two online tools to examine and research various project KPIs, log income and other metrics of a project.
- Select the token you want Messari, then go to the profile page and do some research. When calculating the total revenue of the project, calculate how many tokens were issued in the same period you chose.
- Use CoinGecko , DeFillama or dune analysis as backups in case Messari doesn’t give you the information you need.
- Calculate the actual yield of the project: Calculating the actual return on a given project can provide insight into whether the project is viable and capable of producing actual results.
- To determine the total cost of token issuance, multiply the number of tokens issued by the token price, and then subtract the result from the total revenue.
- If the project shows potential according to the calculations, the market fit is another crucial aspect. Regardless of the health of the market or the benefits tokens offer, people must want to use the protocol.
- The project should use a safe cryptocurrency like ETH or stablecoins for rewards. Stay away from projects that inject unregulated, highly unstable, and unsustainable altcoins.
Examples of real yield projects
- GMX: GMX is a decentralized spot and perpetual exchange that offers zero price impact trades and low swap fees. It is a dedicated multi-asset pool that supports trading and generates fees for liquidity providers via market making, swap fees and leverage trading. It is currently live on Avalanche and Arbitrum.
This exchange consists of two tokens: $GMX, the utility and governance token, and $GML, the liquidity provider token.
GMX holders who participate will receive 30% of the income from swaps and leveraged trading, while GLP holders will receive the remaining 70%. In addition, these fees are paid in ETH.
2. UMANI: Umami is a market maker and liquidity source that helps affiliate protocols scale their liquidity quickly. With “sustainable, risk-hedged DeFi returns,” it prides itself on what it offers.
Stakers of the $UMAMI token receive a share of the protocol revenue from its vault fees denominated in $ETH.
By depositing Umami for mUmami, holders can earn 6% APR expressed in WETH from Umami’s cash and log earnings.
3. BLACKED: Edited is a smart contract suite that powers cash flow for DeFi protocols. It revolves around its meta-governance token $BTRFLY, which is backed by a handful of the protocol’s other governance assets.
BTRFLY can be staked and locked for 16 to 17 month epochs in exchange for income locked BTRFLY (rlBTRFLY). This token rewards holders with revenue generated through the redacted treasury and product ecosystem and paid in ETH.
DeFi projects should generate more revenue than they consume, just like any sustainable business strategy. As an investor, you should also do your research to find out which companies are actually generating returns to avoid falling victim to poorly designed protocols.
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