Recently, the Uniswap Foundation proposed a fee-sharing mechanism for UNI token holders that have delegated and staked their tokens, making the entire concept of “real yield” once again the talk of the town.
The concept of yield farming incentivizes liquidity providers to deposit more of their assets into a DeFi protocol. However, not all DeFi yields are created equal, and some may be more unsustainable than others.
This article will explore the concept of real yield in DeFi and why it matters.
First of all, what should you know about DeFi Yield Farming?
Yield Farming, also known as Liquidity Mining, is a popular way of generating yields in DeFi.
Numerous yield farming avenues exist, such as participating in liquidity pools, engaging in staking, and utilizing lending protocols. The unifying theme across these methods is that they offer a return to the user as a reward for employing their funds in these activities.
While most yields can be earned from token emissions, some crypto projects are adopting more sustainable Real Yield strategies. Why?
Token emission yields provide immediate rewards through issued tokens, but they come with the risk of inflation and potential instability. In contrast, sustainable real yield, derived from revenue earned from platform activities, contributes to the ecosystem’s long-term growth and health, offering a more stable and beneficial approach to earning in DeFi.
Why Do We Need Real Yield in DeFi?
There’s nothing new about real yield in the real world because that’s just how a business works.
However, the norm in Web3 deviates somewhat. The blockchain technology enables projects to create their own “money” — or tokens — without any restrictions. Consequently, the common strategy has been to allocate these tokens through yield farming.
As DeFi protocols grow, there’s pressure to attract yield farmers with a higher APY on token emissions. It’s a great business approach during market booms when numbers are on the rise, and everyone is happy.
However, when the numbers fall, it starts to spiral out of control. Investors offload their tokens, yields decline, liquidity dries up, and token holders end up with diminished value. This model lacks sustainability.
Rather, protocols need to build legitimate businesses that produce actual revenues, thereby creating real yields.
How Does Real Yield Work?
Real yield = real value
You may consider that real yield bears a resemblance to stock market dividends. Just as dividends paid by a company without adequate revenue are unsustainable, crypto projects also need a healthy and stable revenue stream to support their yields. This revenue typically originates from service fees.
For instance, an automated market maker (AMM) might generate income through fees from liquidity pool transactions, and a yield optimizer could distribute a portion of its performance fee to its governance token holders.
Let’s look at some examples of the protocols that do.
GMX
GMX is a decentralized perpetual exchange. The protocol utilizes a unique model where users can act as the counterparty for traders on the DEX by providing liquidity to a basket of assets. This pool is known as GLP.
GLP primarily consists of majors such as ETH and wBTC as well as stablecoins and is designed to give index-type exposure to LPs.
To open positions on GMX, traders borrow from GLP, with a borrowing fee replacing the traditional funding rate. This, along with fees generated from traders opening positions, liquidations, and swaps, is paid out in ETH or AVAX to GLP holders and GMX stakers at a 70/30 split.
There are currently over $177M of assets in GLP across the protocols Arbiturm and Avalanche deployments.
MakerDAO
MakerDAO is the third-largest lending protocol by total value locked, that automates the collateralization and lending of its stablecoin, called DAI. DAI stakers can earn the DAI savings rate (DSR), which as of today was at 5%. This yield is funded by Maker’s lending interests, most of which stem from supplying part of its collateral into US treasuries and other real-world assets (RWAs).
By boasting a $2.34B RWA portfolio, including $1.14B worth of U.S. treasury bonds and 500M USDC from Coinbase Prime, Maker is shifting to a more profitable and self-sufficient business through its operations.
Uniswap
Uniswap stands out as the leading AMM DEX, with a staggering $7.78 billion in trades during February 2024 alone, generating over $60 million in transaction fees, according to Token Terminal. For every trade on Uniswap, users are paying a fee of 0.01% to 1% per transaction. These trading fees are shared with liquidity providers, who deposit their tokens into liquidity pools to facilitate trading activity.
While not finalized yet, Uniswap’s recent proposal is paving the way for a new fee mechanism, where protocol fees will be distributed proportionally among token holders who have staked and delegated their UNI votes.
How Is AshSwap Shaping a Real Yield Realm on MultiversX?
From the start, AshSwap set up its fee system to make sure everyone — LPs, ASH stakers, and the platform — benefits fairly.
When LPs add their assets to AshSwap, they get half of the pool’s trading fees in LP tokens. Even though it’s only been on the MultiversX Mainnet for a little over a year, AshSwap has quickly grown to be the second-biggest AMM DEX, with a total trading volume nearing $125 million. The top-performing pool on AshSwap, the Hatom Liquid Staking pool sEGLD-wEGLD, has $4.7 million in it and sees about $600,000 in trading volume every day.
However, the best way to earn real yields on AshSwap is through Governance Staking. When you stake ASH tokens for a maximum of 4 years to get veASH, you will share 50% of the platform’s trading fees in stablecoins. Since we are not just an AMM DEX, but a One-stop DeFi Hub with DEX Aggregator and Perpetual DEX, the income doesn’t just come from DEX trades.
AshSwap Aggregator v2 introduced a way for SDK integrators and UI providers to charge their users a platform fee, of which 20% will be directed to AshSwap Governance. With over $140 million trading volume on AshSwap Aggregator and our increasing number of partners, veASH holders can look forward to a steady income.
More notably, another revenue stream is set to stem from our new product, AshPerp, which is the first perpetual DEX to be built on the MultiversX network. This has huge potential for us since on-chain derivatives trading is now one of the highest revenue-generating sectors in the DeFi space, with a daily trading fee of $50 million.
Upon the newest fee structure being implemented on the AshPerp Limited Mainnet, 50% of platform fees, including those from trading fees, liquidation fees, and borrowing fees, will be shared with AshSwap Governance. The other half is saved for R&D and operations.
This approach not only incentivizes users to stake ASH tokens but also fosters a harmonically beneficial relationship between the protocol and our stakeholders, ensuring a long-term real yield to ASH investors.
Is Real Yield the Key to A Better DeFi?
The answer isn’t straightforward.
Emission-based incentives have historically attracted users. Meanwhile, we are witnessing a wave of protocols that gradually reduce these incentives, shifting towards more sustainable practices. It’s not accurate to claim that aiming for real yield is always superior or that emission-based strategies are inherently flawed. The future seems to favor DeFi projects that build on revenue models tied to genuine utility.
Real Yield: Final Thoughts
Real yield offers more sustainable returns from meaningful engagement with a protocol, and in turn, contributes to its long-term growth. On the other hand, emissions are not just gimmicks but strategic tools that can help grow a project’s user base and, with the right approach, pave the way to lasting success. In 2024, the landscape of yield farming is rapidly evolving, incorporating a range of activities. Therefore, it’s important for protocols and users to move towards businesses that prioritize value and offer substantial returns.
About Us
AshSwap is the first stable-swap AMM DEX and Auto-Concentrated Liquidity on MultiversX to provide a new approach to liquidity pool design that helps enhance yields and reduce slippage. With our top-notch set of features, our vision is to become the One-stop DeFi Hub on MultiversX.
AshPerp is a decentralized perpetual trading platform on the MultiversX network, developed as a DeFi module alongside AshSwap. It offers high-leverage trading (up to 100x), supports various asset pairs, and aims to meet the demand for decentralized futures trading on MultiversX.
