Is “Real-Yied” the Future of Decentralized Finance?

In times when centralized exchanges and other crypto services seem to be dropping like flies, the importance of more transparency and decentralization has certainly been brought to mind for some. These are the promises that the DeFi sector is likely to boast again in the wake of these crashes. But DeFi is also plagued with its own problems. In parts of the past bull market, the area seemed like an infantile financial playground with no real added value. At the latest since the current bear market, food tokens, yield farming and the like seem to have come to an end. These are now to give way to a new narrative.

DeFi: The concept of (in)real earnings

The idea behind “real yield” is simple: DeFi users generate a return that is based on sustainable business models and creates added value. “Crypto real economy” if you will. This should also stand in stark contrast to the “Get-Big-Fast approach” of the past DeFi age.

Because so far, many protocols have mainly offered their own tokens as a return for various processes in the DeFi sector. The aim of the platforms was to use them to generate artificially high returns and to secure large amounts of liquidity as quickly as possible. The income for users comes purely from the emission of these tokens. And the whole thing is only profitable as long as the prices of these tokens rise.

After several DeFi tokens have fallen by 80 to 90 percent from their all-time high, there can be no more talk of a bull market. Liquidity left the sector correspondingly quickly, which promptly caused yields on many platforms to drop significantly. In the meantime, DeFi offers are competing with the high yields of the comparatively safe US government bonds.

New business models in the DeFi sector

The new guard of “real” DeFi protocols should now support a sustainably high return paired with a real use case for decentralized finance. One of these platforms is GMXthe decentralized exchange on Ethereum’s Layer 2 blockchain Arbitrum.

The fees for trades and Co. generated on the trading platform are distributed to holders of the GMX tokens. In addition, users provide liquidity for traders by purchasing GLP, a token backed by ETH, BTC and USDC. Regardless of the market direction, GMX always has a certain cash flow and can pay a dividend to users. That’s currently a 16 percent return, paid in ETH.

Lending is also to be given a new face in a quasi-hybrid economy between DeFi and TradFi. The decentralized credit system has so far been limited by its overcollateralisation. Users could therefore usually only borrow half as much as they had deposited as security.

platforms like goldfinch build a bridge between DeFi and traditional finance. Borrowers from the “real” business world are approaching the decentralized sector in order to obtain a loan more easily and efficiently. This is taken from liquidity pools, filled by numerous users from all over the world. These generate a high, single-digit return, mainly paid out in ETH or USDC.

These are just some of the examples of the new finance in the crypto sector. That too insurance business for loans or even the financing of real estate are already being used in the new industry.

lack of trust

The real yield movement is evidence of an increasing demand for a real use case for decentralized credit and finance. However, the still young movement is encountering strong macroeconomic headwinds. In particular because investors are currently more likely to rely on supposedly “safe” financial products.

High yields in the DeFi space should therefore act as a deterrent for some. Skepticism is high given the past promises of those protocols that promised returns of up to 20 percent on stablecoins.

But the recent DeFi development also offers prospects for the new financial world after the crisis. The sector is already beginning to develop. It is the first of many moves by the burgeoning industry away from the “food token yield playground” towards a serious global and decentralized credit and capital market.