Yield

Yield is what you earn for putting your crypto to work. Deposit USDC into a lending protocol, and borrowers pay you interest. That interest — expressed as a percentage of your deposit over a year — is your yield.

Lenders care about yield because it's the whole point of lending. Borrowers care because the yield lenders demand sets the cost of their loan. When yield goes up, borrowing gets more expensive.

How It Works

Yield in crypto lending comes from three sources: interest paid by borrowers, protocol incentives (extra tokens a platform distributes to attract liquidity), and governance token rewards. In practice, most of your yield on a stablecoin pool comes from borrower interest. The other two are bonuses — and they can disappear.

Here's a concrete example. You deposit $10,000 in USDC into a lending pool offering 5% APY. After one year, you've earned $500 in interest — assuming the rate held steady. It rarely does. Rates on DeFi pools float with supply and demand, sometimes swinging several percentage points in a single week.

APY (Annual Percentage Yield) accounts for compounding — interest earned on your interest. APR (Annual Percentage Rate) does not. A protocol advertising 8% APR compounds to roughly 8.3% APY if interest accrues daily. Small difference at low rates, bigger gap as rates climb.

Why It Matters

Yield is the number that makes or breaks a lending strategy. A 4% yield on a stablecoin might look modest until you compare it to a savings account. A 15% yield on a volatile asset might look great until the asset drops 40%.

Yield also signals market conditions. When borrowing demand is high, yields rise. When liquidity floods a pool, yields compress. Watching yield trends tells you something real about what the market is doing.

What to Watch

The most common mistake is treating advertised yield as guaranteed income. Protocol incentive rewards are paid in governance tokens that can lose value fast. A pool advertising 20% APY might be delivering 5% in real stablecoin interest and 15% in a token that's down 60% since the promotion launched.