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Most DeFi 'APYs' you see are inflated by token emissions — protocol prints its governance token and pays you in it. The 'real yield' from actual fees is much smaller. Builders who can't distinguish the two get burned designing protocols that depend on perpetual emission, and users get burned chasing yields that vanish when emissions stop.
Decompose a DeFi yield.
Use these three in order. Each builds on the one before.
In one paragraph, explain real APY vs emissions APY.
Walk me through how a protocol prints tokens to subsidize yield.
Given a new DEX with $0 fees but 100% APY in their token, predict the TVL curve over 6 months and identify the bear case.
Example: GMX-style LP position (illustrative numbers)
Position: $10,000 deposited as GLP
Reported APR: 35%
Where does the 35% come from?
Real yield (actual revenue from protocol fees):
Trading fees: 8.5% APR ← real users paying for service
Swap fees: 1.5% APR
Borrow fees from longs: 3.0% APR
────────────────────────────────
Total real yield: 13.0% APR
Paid in: ETH (the actual fees collected)
Emissions yield (protocol prints its own token):
esGMX rewards: 22% APR
Paid in: esGMX (escrowed GMX, must vest 1 year)
Implications:
Real yield: actual income; sustainable as long as volume holds
Emissions: protocol dilution; sustainable only as long as emissions print
When emissions end: APR drops to ~13%, often a >50% TVL exodus
How to evaluate any DeFi yield:
1. Strip emissions:
reported_apy - emissions_apy = real_apy
2. Check the source of real yield:
- Trading fees? Need volume to sustain.
- Lending interest? Need borrow demand.
- MEV/protocol-owned? Sticky but small.
- Token taxes? Often a Ponzi marker.
3. Sustainability test:
If emissions go to 0 tomorrow, what's the residual yield?
If <2-3%, the product is an emission scheme, not a yield product.
Watching TVL:
TVL alone is misleading — protocols inflate via emissions
Better: TVL × utilization (how much is actually USED)
Or: protocol revenue divided by TVL = real yield rate