Rewards & yield
FOLLOW THE SOURCE OF YIELD.
Before comparing percentages, understand the activity that produces the return and the conditions that can change it.
One word, several mechanisms
Yield can refer to rewards for network participation, interest paid by borrowers, fees from trading, incentive tokens, or the outcome of a strategy. Those mechanisms have different dependencies. A staking label does not make every return a validator reward.
Start by answering three questions: what asset is committed, what activity produces the return, and what claim comes back to you? If a product combines several activities, list each component separately.
Network staking rewards
Explore participation in a proof-of-stake network and the fees or responsibilities of the chosen route.
Stablecoin strategies
Separate the design of the stablecoin from the lending or other activity generating a return.
Perpetuals vaults
Investigate market exposure, trading fees, funding, strategy rules, and the mechanics of an exit.
Yield tokens
Learn how separating principal and future yield changes the claim attached to a token.
Read the annualization assumptions
An annualized figure takes an observation or assumption and expresses it over a year. It does not necessarily describe what happened over a full year, or what you will receive in the next one.
Check the observation period, compounding assumption, and treatment of commission and transaction costs. Ask whether temporary incentives are included and what asset denominates the return. Our APR-versus-APY article explains the arithmetic with explicitly illustrative examples.
Account for the round trip
A quoted rate usually does not tell the whole story of entering, holding, and exiting. Consider conversion costs, transaction fees, idle periods, and possible differences between a receipt token’s accounting value and market price.
Compare positions on a consistent basis. A percentage in one token is not directly comparable with the same percentage in another token. If you care about value in dollars or another currency, price changes belong in the assessment too.
Inspect the underlying activity
As one documented example, Aave’s protocol documentation describes suppliers providing liquidity and borrowers accessing that liquidity. This is a lending mechanism, distinct from supplying an asset to a blockchain’s validator system.
For any route, pair the mechanism with a clear risk review and an exit plan. A more complicated return should come with a more detailed explanation of its dependencies.
A stronger decision starts here.
Build your understanding one block at a time. Start with the mechanics, then explore the risks.