Important fast food
- The “real return” refers to the DeFi protocol fees that go to token holders.
- Many Ethereum protocols are offering “real returns” today.
- There is good reason to discover this trend, but there are downsides.
A closer look at the buzzword “real yield.”
What is “real back”?
There’s a new buzzword in crypto this month, but unless you’re mired in the trenches of decentralized finance and growing crops, you probably haven’t heard of it yet. The phrase “real back” is quickly becoming the new standard for what’s hot and what’s not, and the protocols it provides are getting the lion’s share of attention from the DeFi audience. But what does a true comeback mean, and why do people love it so much? lets take alook.
Simply put, the real return is where the DeFi protocol picks up token fees from its users and forwards it to token holders. What separates the real dividend from earlier forms of yield farming is that DeFi’s “profits” are paid into an asset outside the protocol’s control, such as ETH or USDC, rather than into its native token. This makes the return “real” because its value is not inflated by the excessive emissions of the protocol’s original token.
Several protocols offer real returns in the current DeFi market, with more being launched every day. Leveraged trading platforms such as the GMX and MUX Protocol, the meta-governance protocol Redacted Cartel, the pure return platform Umami Finance, and even the Ethereum infrastructure Manifold protocol all offer returns paid in whole or in part in ETH or USDC.
While the real returns seem like a marked improvement over previous attempts at sustainable DeFi tokens, it is important to understand the downsides of this strategy as well. The real return phrase is quickly becoming a way for protocols to signal to potential users that they should deposit their tokens because what they can earn is real, i.e. better than their competitors, even if this is not necessarily the case.
For example, the protocol can advertise a real two-digit return paid in ETH for its native token while using native token emissions to attract the liquidity that makes the two-digit APY possible in the first place. In this case, users will almost always be diluted by the amount of tokens issued to withdraw the real return from ETH.
Another point to keep in mind is that if the protocol distributes all its profits to token holders, it cannot use that money to grow itself. As Redacted Cartel co-founder 0xSami said, “If you can’t find natural adoption without incentives, it would be a terrible idea to distribute money that you can use to fund research and development [research and development] To find PMF [product market fit] to token holders. Just like a peacock, it will harm the DAO if the peacock easily becomes a victim of exchange in the wild.”
I’m not saying avoid protocols that offer these bonuses; There are good reasons why so many of them are so popular. But now that real returns are a well-known buzzword, less granular protocols will attempt to model the highest possible real returns to attract users and liquidity, even if this results in a net negative for token holders and harms the longevity of the protocol.
Thanks for reading, everyone. Until next time.
Disclosure: At the time of writing this article, the author owns ETH, MCB, BTRFLY, and many other cryptocurrencies.