Unit 3 · Level 3 · Stablecoins & yield
Where yield actually comes from
Every DeFi yield on Earth traces back to exactly three sources. One is trading fees: traders pay to swap in a pool you stocked. Two is borrow interest: borrowers pay to use your deposited money. Three is token emissions: the protocol prints its own token and hands it out. The first two are earned from real users. The third is printed. Every APY you'll ever see is some mix of these, and your job is to spot the recipe.
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What you get asked
A stablecoin pool pays you 5% from swap fees. Who is actually paying you?
Payments from real users are the healthiest kind of yield. (If the honest answer were 'future depositors', that would be a Ponzi, and it has happened.)
Match each yield source to who really pays:
Three real answers plus one warning sign. If nobody can explain which of the three it is, assume the worst.
If you can't tell where a yield comes from, you are probably the ___.
The oldest rule in finance, DeFi edition: when the source of the payout is a mystery, the payout is usually coming out of people like you.
Terra's Anchor protocol paid a 'safe' 20% on UST before the ~$40B collapse in 2022. What was really funding that 20%?
Anchor's borrow income never came close to covering 20%; a subsidy fund topped up the difference until confidence broke. League 1's mantra was the whole defense: where does the yield come from?
Why are fees and borrow interest healthier yield sources than emissions?
Fees and interest grow when real people use the thing. Printing tokens just slices the same pie thinner. It's fine as a launch bonus and fatal as a business model. 🐜
The rest of this unit
Every APY has a source: fees, borrowers, or freshly printed tokens.