Crypto DeFi

Sustainable DeFi: Real Yield Projects

The Crypto Illuminati
The Crypto Illuminati
March 10, 2023 · 4 minutes

Source

by Saurav & Russian DeFi

Moving Beyond Inflationary Tokens

One of the newer narratives in DeFi is that of “Real Yield”.

‘Real yield’ projects focus on paying their holders from their fees rather than the inflationary token mechanics of the old.

This new sustainable model will allow tasks to perform well long term as opposed to the tokenomics of a project leading to its massive downfall. In this article, we will cover the “Real Yield” trend and what it means for the future of DeFi.

What is Real Yield?

Real Yield is a share of a project’s revenue earnings, usually paid in a shared asset like ETH or USDT.

This is available to holders of the governance token that are staking it.

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 the Real Yield Narrative

Let’s look at some protocols within this narrative and their success so far:

GMX (GMX)

This is a decentralised exchange (DEX) for spot and derivative trading. It became popular after people saw its governance token hit ~ $60 in Sept/Oct 2022 amid a bear market.

  • There was then a second surge which saw it hit an all-time high of $88 in Feb 2023.
  • Since its launch in 2021, GMX has established deep liquidity, and its trading volumes have blown up.
  • Aside from its main product of being a DEX, a large portion of its success is from its unique revenue-share model.

Synthetix (SNX)

SNX is a decentralised protocol on which you can trade synthetic assets (tokenised 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 (annualised) as of September 2022.
  • But now it seems to have suffered a significant slowdown, likely due to the macroclimate; as of Mar 2023, annualised revenue is $15 million.
  • 100% of this goes back to SNX stakers. SNX is not pure real yield: 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.

Dopex (DPX)

DPX is a decentralised options exchange on Arbitrum that allows users to buy and sell options contracts and earn real yields passively.

  • Its main product is the single-st 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.

Redacted Cartel (BTRFLY)

BTRFLY is a meta-governance protocol that gets the tokens of other DeFi protocols for governance influence and provides liquidity-related services to other protocols.

  • The protocol generates revenue in 3 ways: the treasury (made of different yield-generating governance tokens), Pirex (creates liquid wrappers that allow for auto-compounding and the tokenisation 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 rlBTRFL.
  • After this, users will get a slice of 50% of hidden hands revenue, 40% from Pifrex between 15 and 42.5% of the treasury revenue. This is paid out in ETH every two weeks.

The Future of Real Yield

Real Yield is a promising model for the future of DeFi due to its emphasis on real revenue being the source of funding for token holders. This marks a turning point for DeFi from inflationary tokens that can’t last, into protocols that generate real revenue and distribute it to holders, making it a more sustainable approach.

However, there are also potential downsides to this approach. For example, for a project to use the Real Yield model, it must be profitable. This means that some projects may initially resort to using inflationary tactics to attract users and then shift to the Real Yield model, which may not work for new projects.

Another downside is that if projects distribute large percentages or 100% of their revenue, they may have little to no money left for research and development, which could leave protocols stagnant and without funding to grow and improve. This can ultimately hurt the long-term potential of a project.

If projects can figure out the correct balance between revenue distribution and research and development, Real Yield could prove to be a sustainable model for the future of DeFi.

Conclusion

Real Yield is a newer narrative in DeFi that focuses on paying token holders from a project’s revenue earnings, making it a more sustainable approach than relying on inflationary token mechanics.

While the Real Yield model has its potential downsides, it could prove to be a promising model for the future of DeFi if projects can find the right balance between revenue distribution and research and development.

Projects such as GMX, Synthetix, Dopex, and Redacted Cartel have already seen success with the Real Yield model, making it an approach worth considering for other projects in the DeFi space.