Discussing Real Yield
The DeFi world has been taken over by the real yield narrative. This new sustainable model will allow tasks to perform well long term.
Recently, the DeFi world has been taken over by the real yield narrative. Projects are now focusing on paying incentives from their fees rather than using the inflationary token mechanics of past protocols. This new sustainable model will allow tasks to perform well long term. In this article, we will cover the “Real Yield” trend and what it means for the future of DeFi.
What is the real yield narrative?
Real Yield = the actual revenue of a project distributed to incentivize tokenholders, instead of handing out dilutionary free tokens.
Before this was born, users were jumping from one protocol to another to get token rewards and sell them off before anyone else - yield farming was prevalent and lucrative from 2020 to 2021.
Projects following this narrative?
Let's look at some protocols within this narrative and their success so far:
This is a decentralized exchange (DEX) for spot and derivative trading. It became popular after its governance token hit $57 in September 2022, near its all-time high ($62 in Jan 2022); amid a bear market, this is eye-catching. GMX has established deep liquidity, and its trading volumes have blown up. Aside from its main product, a large portion of its success is its unique revenue-share model.
This protocol has two tokens; GLP and GMX - GLP is the indexed value of all platforms available and trading assets, and GMX is the project’s native governance token used for revenue sharing.
70% of the exchange's trading fees are paid to liquidity providers or GLP token holders (usually in ETH on Arbitrum and AVAX on Avalanche), and 30% goes to GMX stakers.
As you can see, cumulative revenue has been trending upwards heavily over the last 180 days at the time of writing.
SNX is a decentralized protocol on which you can trade synthetic assets (tokenized derivatives) and standard derivatives - one of the oldest projects in DeFi. It found its early success on ETH after the tokenomics revamp into a real yield protocol. SNX protocol generated $82 million in revenue (annualized) as of September 2002, but now it seems to have suffered a significant slowdown, likely due to the macroclimate. As of October 2022, annualized revenue is $12 million (source: Token Terminal); 100% of this goes back to SNX stakers.
SNX is not a pure real yield protocol: the yield for staking is partially from inflationary token rewards, and the rest comes from the exchange trading fees in the form of sUSD stablecoin. Nevertheless, this is still one of the top revenue-generating protocols in DeFi.
DPX is a decentralized options exchange on Arbitrum that allows users to buy and sell options contracts and earn real yields passively. Its main product is the single staking options vaults (SSOV), which gives options buyers deep liquidity and automated, passive income to the options sellers. DPX also allows users to bet on the direction of interest rates in DeFi through interest rate options and Atlantic straddles, which lets users bet on the volatility in the price action of certain assets.
Alongside the real yield earnings of the directional risk plays, DPX generates real yield through it. Fees are split between holders - 70% to liquidity providers, 5% to delegates, 5% to buying and burning the protocol’s rebate token rDPX, and 15% to DPX Stakers.
Similar to SNX, DPX has a partial yield in inflationary token emissions.
Redacted Cartel (BTRFLY)
BTRFLY is a meta-governance protocol that gets the tokens of other DeFi protocols for governance influence and to provide liquidity-related services.
The protocol generates revenue in three ways: the treasury (made of different yield-generating governance tokens), Pirex (creates liquid wrappers that allow for auto-compounding and the tokenization of future vote tokens), and Hidden Hand (a marketplace for governance incentives/bribes).
To attain revenue share, users must “revenue-lock” the BTRFLY token for 16 weeks to get rlBTRFLY. After this, users will get 50% of Hidden Hand’s revenue, 40% from Pirex, and between 15 and 42.5% of the treasury revenue. This is paid out in ETH every two weeks.
The future of real yield looks bright due to this model’s emphasis on actual revenue being the source of funding incentives. This marks a turning point in DeFi, from inflationary tokens that aren’t sustainable to protocols generating real revenue and distributing it to holders.
There are downsides to this approach; (1) projects must be profitable to do this, so they may result in using inflationary tactics to attract people and then shift to the real yield model; this is unlikely to work for new projects, (2) distributing large percentages or 100% leaves projects will little to no money for research and development, leaving protocols stagnant and without funding to grow and improve. This can hurt the long-term potential of a project. If projects can figure out the correct holders-to-development split of the revenue, a big boom in real yield could come along.
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