DeFi Yields 101
Where does the money actually come from?
Understanding DeFi Yields
The Three Sources of Yield
In DeFi, yield generally comes from three places. We focus on the first two.
1. Lending Demand (The Good Stuff)
People want to borrow crypto.
- Traders borrow to leverage their positions.
- Institutions borrow for market making.
- Users borrow against their ETH to buy things using USDC without selling.
They pay interest to do this. This is where SovaBase earns most of its yield. It is real, sustainable economic activity.
2. Trading Fees (The Also Good Stuff)
When people swap tokens on a DEX (like Uniswap), they pay a fee (e.g., 0.3%).
- Liquidity Providers (LPs) earn these fees.
- This is sustainable as long as people are trading.
3. Token Incentives (The "Ponzi" Stuff)
Protocols often print their own governance tokens to attract users.
- "Deposit USDC and get 20% APY in $MEMECOIN."
- Problem: When the token price crashes, the yield vanishes.
- SovaBase Stance: We avoid these kind of yields.
Real Yield vs. Fake Yield
Real Yield: Comes from revenue (interest or fees).
Fake Yield: Comes from dilution (printing new tokens).
SovaBase optimizes for Real Yield.
Why Rates Fluctuate
DeFi rates are determined by supply and demand.
- Bull Market: Everyone wants to borrow to buy more crypto -> Rates go UP.
- Bear Market: No one wants to borrow -> Rates go DOWN.
Our automated rebalancing helps smooth out these fluctuations by constantly moving capital to the most efficient market.