Joachim 🗡️

When I first got into exploring DeFi, I kept asking myself the same thing a lot of people still ask: how is everyone actually making money here? Is it basically like traditional banking, where you deposit your money, it earns interest in the background, and you just wait and withdraw later with profit? Not exactly. Here’s what I eventually figured out about where yield really comes from: On DEXs like @Uniswap or @CurveFinance, a big part of LP yield comes from trading fees. Every time someone swaps in the pool you’re in, a small fee is collected and shared with liquidity providers. So the more real trading activity there is, the more you earn. No volume usually means thin or inconsistent yield. On lending protocols like @aave, you’re closer to the banking aspect. You supply assets, borrowers pay interest to use them, and you earn a cut of that interest. The key difference is that this only works when there’s actual borrowing demand. Then there are token incentives. This is when protocols print and distribute their own tokens as rewards to attract liquidity (think a lot of early yield farms or current points programs). It can look attractive at first, but a lot of that yield is coming from dilution rather than real usage. Once the emissions slow down or stop, the returns often drop sharply. The sustainable stuff tends to come from fees or interest that other users are paying. Emissions are usually temporary. If this breakdown was useful, feel free to share it with someone still figuring this out.