Guide
A guide to DeFi yield
An introduction to DeFi yield: where it comes from, the main risks, and how to assess whether a rate is sustainable.
What DeFi yield is
Every yield is paid by someone. Identifying who pays, and why, is the first step in assessing any rate.
- Borrowers pay interest for access to capital or leverage.
- Networks pay stakers to validate and secure the chain.
- Traders pay fees for the liquidity they trade against.
- Protocols pay incentives in their own newly issued token. This is dilution rather than revenue, and it ends when the emission schedule ends.
Rates range from roughly 2–4% for ETH staking to over 20% for higher-risk liquidity mining. The difference is largely a premium for additional risk.
The four kinds of yield
Staking
Tokens are locked to help secure a network in exchange for its rewards. Liquid staking issues a receipt token, so the position remains usable elsewhere.
Where: ETH via Lido or Rocket Pool, SOL via Jito or Marinade. Indicatively 2–4% on ETH, 6–8% on SOL.
Catch: The lowest structural risk of the four, with full exposure to the asset's price.
Lending
Deposits are lent to borrowers, who pay interest. Rates vary with the share of the pool that is borrowed.
Where: USDC on Aave, Compound or Morpho. Indicatively 3–8% on stablecoins.
Catch: Smart contract risk and utilisation risk: withdrawals can be delayed when a pool is fully borrowed.
Liquidity provision
A pair of tokens is supplied to a trading pool in exchange for a share of its trading fees.
Where: Uniswap, Curve, Balancer. Fee income depends on trading volume.
Catch: Impermanent loss when the two tokens diverge in price. Pairs of two stablecoins largely avoid it.
Restaking
An already-staked asset is staked again to earn a second layer of rewards on the same capital.
Where: stETH restaked through EigenLayer; ether.fi's weETH does it natively.
Catch: Additional slashing and smart contract risk. The extra yield is compensation for both.
Stablecoins and staking
The most common starting points. Stablecoins remove price exposure; staking earns network rewards. Rates for the same asset can differ by several points between chains, because demand is specific to each deployment.
Stablecoin lending
Aave and Compound are the largest lending markets. Morpho allocates across markets and often offers higher rates. Maple runs institutional lending pools, and Pendle offers fixed rates for a set term.
The savings rate
Sky pays a savings rate on USDS through sUSDS, funded by protocol revenue rather than borrower demand. It is usually lower than the highest lending rates and more stable.
How Yielna Earn uses it →Staking ETH
Lido (stETH) is the largest provider, Rocket Pool (rETH) is the decentralised alternative, and Coinbase (cbETH) is custodial. Rates are similar across providers, so control and contract risk are the main differences.
Staking SOL
Indicatively 6–8%, partly due to higher token issuance; the real return is the rate minus inflation. Jito adds MEV revenue, and Marinade distributes stake across many validators.
Real yield versus emissions
Base APY is revenue: interest and fees paid by users of the protocol.
Reward APY is paid in the protocol's own newly issued token. It is funded by dilution and ends on a set schedule.
An 18% APY made up of 3% base and 15% rewards can fall by two thirds when emissions are reduced. For this reason, Yielna shows the base and reward components of every APY separately.
Five key risks
Smart contract risk
Funds are held by code, and code can contain flaws. Audits reduce this risk but do not remove it. A long operating history and large TVL are useful, if imperfect, evidence.
Impermanent loss
When the two tokens in a pair diverge in price, the pool rebalances toward the weaker token. Fee income must exceed this loss for the position to be profitable.
Control and governance
Rates can be cut, markets paused and rules changed. Before depositing, check who holds that authority and whether a timelock gives advance notice.
Market risk
A 20% yield on a token that falls 40% results in a net loss. Only stablecoins remove this risk.
Peg and issuer risk
A stablecoin depends on its issuer: reserves and banking partners for fiat-backed coins, collateral and liquidations for crypto-backed coins. Both types have lost their peg in the past.
Every yield compensates for some combination of these risks. Identify which ones apply before depositing.
Reading a badge and the risk meter
The badge
A set of pass-or-fail requirements covering control, published code, operating history, size and exploit history. Protocols can earn green or gold; pools can earn green. No badge means a requirement is not met or not yet verified.
The risk meter
A reading from Low to High for every protocol and pool, covering contract, control, yield and liquidity risk. The Health page shows the same reading as a score out of 100.
Using them
Use both to narrow a shortlist, then review the details on the protocol or pool page. Neither is a guarantee of safety.
The full badge criteria and removal rules are on the Credibility page.
A starting strategy
- 01Start with stablecoins. Use a large lending market or the savings rate to avoid price exposure.
- 02Use a layer-2 network. Base, Arbitrum and OP Mainnet reduce gas costs to cents.
- 03Start with a small amount. Use the first deposit to learn how deposits and withdrawals work.
- 04Check the badge and risk meter first. Exclude protocols you would not trust before comparing rates.
- 05Check the composition of the yield. If most of it comes from incentives, find out when they end.
- 06Run the simulator. Confirm that the difference between two pools justifies any additional risk.
- 07Diversify across protocols. Smart contract failures affect one protocol at a time.
Advanced strategies
Each strategy increases yield by taking on additional risk. All of them can be modelled before use.
Recursive lending
Depositing, borrowing against the deposit and depositing again. This increases both the rate spread and the liquidation risk.
Concentrated liquidity
Supplying liquidity within a price range. Fees are higher while the price stays in range and stop when it leaves. Requires active management.
Fixed rates
Pendle separates a yield-bearing token into principal and yield. Buying the principal locks in a known return until maturity.
Restaking stacks
Staking, restaking the receipt token, then depositing it into a fixed-rate product. Each layer adds yield and another contract dependency.
Cross-chain rates
The same asset can pay different rates on different chains. The difference is only worthwhile if it exceeds bridging costs.
Pre-deposit checklist
Six questions to answer before depositing into any pool.
- 01Who pays this yield, and why?
- 02What share of the rate is revenue, and what share is token incentives?
- 03Does the protocol or pool hold a badge, and what does its risk meter read?
- 04What is my exposure if the underlying asset's price falls by half?
- 05How crowded is the market for the underlying asset?
- 06How are funds withdrawn, how long does it take, and what does it cost?
Rates on this page are indicative and may have changed. Current figures are available in the app, sourced from DeFiLlama. This page is not financial advice.
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