CASE 04 / TRACE THE MONEY
Who is paying your yield?
Four fictional offers advertise 12% APR. Follow their funding, predict a stress event, and separate income, principal backing and access to an exit.
Follow the case.
- Open the funding trail
Trace the payer, the allocation process and the asset you receive. A token distribution and recurring revenue are different sources even when their headline percentages match.
- Choose a stress event
End incentives, lower rates and activity, trigger exit demand, reverse hedge funding, or reprice the reward token. Not every event directly affects every offer in the stated model.
- Predict and reveal
Decide whether income, exit access, reward valuation or a loss buffer changes first. Inspect the accounting result and repeat the same conditions over a longer period.
- Keep the receipt
Read what you own, who owes or accounts for it, and how exit works. Separate positive fee or reward income from total return and principal recoverability.
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TAKE IT WITH YOU
The question to keep asking.
Before comparing percentages, identify the payer, the reward asset, the conditions that sustain the payments, and the route back to spendable assets.
YOUR PRACTICAL CHECKLIST
- Name the source: interest, fees, incentives, funding or another flow.
- Check whether the headline is APR or APY and what reinvestment it assumes.
- Identify the reward asset and the price used to value it.
- Find the costs, losses and buffers between gross revenue and distributions.
- Describe your actual claim and its custody or counterparty dependencies.
- Check available exit liquidity and settlement conditions separately from balance value.
Model boundaries & mechanism sources
- The four offers are invented and are not product recommendations. Each starts with a $1,000 position and a 12% illustrative annualized surplus or reward valuation, with no reinvestment or compounding.
- Simple period income equals the annualized amount multiplied by days / 365. A 30-day or 180-day run holds the selected conditions constant solely to compare mechanisms; it is not a forecast.
- The lending and fee cases initially allocate $120 per year. The reward program distributes 120 RWD per year at an initial $1 reference price. The hedge receives $160 and incurs $40 in annualized costs.
- Reward-token dollar amounts use a stated reference price. The model does not sell reward tokens or assume sufficient buyers. Principal token values and LP inventory value are held fixed to isolate income-source and access changes.
- The fictional hedge has a separate $20 operating buffer. Negative income consumes that buffer before reducing position backing; only positive surplus is distributed. This does not reproduce a named protocol’s reserve or reward rules.
- Exit demand limits the principal currently available to $150 in the lending case or $400 in the hedge case. The unavailable remainder stays recorded as a claim unless the model separately identifies a backing loss.
- Each selected event and offer is a fresh alternative scenario. Taxes, user transaction fees, protocol-specific interest curves, collateral restrictions, hedge basis changes and counterparty defaults are excluded.
FOLLOW THE CONNECTIONS