How Crypto WorksA VISUAL FIELD GUIDESearch
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ROUTE 09 / Go deeper

Where does the yield come from?

Distinguish consensus work, borrower interest, fees, and subsidies.

6 ideasAbout 30 minutesRead in order, or choose a step

The same percentage sign can describe very different economic activities. Instead of ranking rates, trace who pays, what they pay for, the unit of account, and the conditions under which the quoted return can be realized.

  1. 01

    Staking and validator rewards

    Find consensus compensation

    Validator rewards depend on network participation and rules.

  2. 02

    DeFi lending

    Find the borrower

    Interest is compensation for supplied credit and its risks.

  3. 03

    Liquidity providers

    Find the trader

    Trading fees compensate a pool’s suppliers, alongside changing inventory risk.

  4. 04

    Yield farming and incentives

    Find the subsidy

    Rewards funded by token emissions are different from external revenue.

  5. 05

    APR, APY and net return

    Check the arithmetic

    Compounding assumptions turn an annual nominal rate into an effective result.

  6. 06

    Restaking

    Find added commitments

    Additional reward sources come with additional duties and failure paths.

CHECK YOUR UNDERSTANDING

Can a positive token-denominated APY coincide with a negative fiat return?

Reveal the explanation

Yes. More token units can be worth less in fiat if the token price falls enough. Fees, penalties, changing rates, and exit conditions further affect the realized result.

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