What is Real Yield in DeFi ?
Real Yield in DeFi refers to the actual profit that an investor can earn from their investments in decentralized finance (DeFi) protocols. It is calculated after considering the various costs associated with DeFi investments, such as gas fees, slippage, and other protocol fees.
What is the difference between Real Yield and Nominal Yield ?
Nominal Yield is the yield that an investor can expect to receive from their investment before taking into account the various costs associated with DeFi investments. Real Yield, on the other hand, is the yield that an investor actually earns after accounting for these costs.
How is Real Yield Calculated ?
Real Yield is calculated by subtracting the costs associated with a DeFi investment from the nominal yield. These costs may include gas fees, slippage, and other protocol fees. To calculate the real yield, an investor can use the following formula:
Real Yield = Nominal Yield – (Gas Fees + Slippage + Protocol Fees)
What are the Costs Associated with DeFi Investments ?
The costs associated with DeFi investments may include:
- Gas Fees: Gas fees are fees that are charged to users for executing transactions on the Ethereum network. These fees are used to compensate the miners who process the transactions.
- Slippage: Slippage refers to the difference between the expected price of a trade and the actual price at which the trade is executed. Slippage can occur when the demand for an asset is higher than its supply, causing the price to increase.
- Protocol Fees: Protocol fees are fees charged by DeFi protocols for providing various services, such as yield farming, lending, and borrowing.
What are the Factors that Affect Real Yield in DeFi ?
The factors that can affect Real Yield in DeFi include:
- Market conditions: Market conditions can have a significant impact on Real Yield. For example, during a bull market, demand for DeFi assets may be high, leading to higher nominal yields and lower Real Yield.
- Gas Fees: Gas fees can also have a significant impact on Real Yield. If gas fees are high, the costs associated with executing transactions on the Ethereum network will be high, reducing the Real Yield for DeFi investments.
- Protocol Design: The design of a DeFi protocol can also have an impact on Real Yield. For example, some protocols may have higher fees or be more susceptible to slippage, leading to a lower Real Yield.
What are the Risks Associated with DeFi Investments ?
Like all investments, DeFi investments come with risks. Some of the risks associated with DeFi investments include:
- Lack of Regulation: DeFi protocols are not regulated, which can make them vulnerable to fraud and other forms of abuse.
- Smart Contract Vulnerabilities: DeFi protocols are built on smart contracts, which can be vulnerable to exploits and security vulnerabilities.
- Market Volatility: DeFi assets can be highly volatile, which can lead to significant losses for investors.
- Liquidity Risks: Some DeFi protocols may have low liquidity, which can make it difficult for investors to exit their positions.
How to Evaluate Real Yield in DeFi ?
Evaluating Real Yield in DeFi requires an understanding of the costs associated with DeFi investments, as well as the market conditions and protocol design. To evaluate Real Yield in DeFi, investors can consider the following factors:
- Gas Fees: Investors should monitor gas fees and consider the impact that these fees may have on their Real Yield.
- Slippage: Investors should be aware of the potential for slippage and consider the impact that it may have on their Real Yield.
- Protocol Fees: Investors should be aware of the fees charged by DeFi protocols and consider the impact that these fees may have on their Real Yield.
- Market Conditions: Investors should monitor market conditions and consider the impact that these conditions may have on their Real Yield.
- Protocol Design: Investors should consider the design of DeFi protocols and consider the impact that this design may have on their Real Yield.