DeFi's Dirty Secret: Why Real Yield is the Answer

Decentralized Finance (DeFi) has emerged as one of the most significant applications of blockchain technology, enabling users to transact without intermediaries, access more financial services, and earn higher returns than traditional financial products. However, DeFi has encountered a significant challenge in the form of fake yield, where token inflation and speculation lead to unsustainable returns and eventual market crashes. Thankfully, some DeFi projects are pioneering a solution to this problem by creating sustainable, real yield ecosystems that reward all stakeholders. In this article, we will explore three such projects - Pendle, Liquity, and Radiant - and how they are creating real yield ecosystems in their respective niches.

Pendle: Selling Future Yield for Real Yield

Pendle is a fixed-rate protocol that enables users to sell future yield and get a discount on ETH today. The protocol has two counterparties: Yield Sellers and Yield Buyers. Yield Sellers can sell their future yield for a fixed price, which means they can speculate on future yield by trading GLP/ETH yield. On the other hand, Yield Buyers can trade the GLP/ETH yield and take a position on the future yield. Since future yield can be immediately converted into the underlying asset, Pendle is viewed as a ‘real yield’ protocol. Therefore, users can either speculate on GLP fees or buy ETH for a discount today, creating a sustainable real yield ecosystem.

Liquity: An Alternative to Stablecoins

The volatility of stablecoins like USDC and USDT has raised concerns about their sustainability as DeFi grows. In contrast, Liquity is a project whose stablecoin, LUSD, prints cash for token-holders while remaining decentralized and uncensorable. The Liquity protocol is designed so that stakeholders in the ecosystem pay LQTY holders. Borrowers pay borrowing fees, while excess capital from liquidations is paid to LQTY holders. The result is a stable and sustainable real yield ecosystem that benefits all stakeholders.

Radiant: A Peer-to-Peer Multichain Bank

Radiant is an omnichain money-market that functions as a bank for its users. Depositors earn interest from borrowers, while borrowers look to source capital from lenders across different chains. Radiant uses overcollateralized lending, which is the simplest form of lending, and interest rates fluctuate around the needs for lending on particular assets. As a RDNT staker, users can earn Real Yield in the form of borrowing interest, platform fees, and penalty fees from those who unstake immediately. Despite its small market cap of $69m, Radiant has already paid over $6m to its users. The project’s success is a testament to the stickiness of real yield protocols, which offer more sustainable returns than speculative tokens.

Conclusion

DeFi has a significant opportunity to revolutionize finance by creating a more inclusive and sustainable financial system. However, the challenges of fake yield have to be addressed to realize this potential. The projects discussed in this article - Pendle, Liquity, and Radiant - are pioneers in creating sustainable, real yield ecosystems that benefit all stakeholders. As the push for a more sustainable DeFi ecosystem grows, real yield protocols will likely remain a significant narrative in the crypto space, providing sustainable returns for investors and users alike.