Yield
Yield is the return you can earn on crypto. It’s often shown as a percentage per year.
What is yield?
Yield can come from interest on crypto that’s been lent out, staking rewards, or trading fees from a liquidity pool. With staking, you lock up crypto or make it available to help a network run. A liquidity pool is a shared pool of tokens that people can trade.
The return can be fixed or variable. APR is a yearly percentage that doesn’t account for compounding. APY does account for compounding, but providers may use different assumptions.
Yield isn’t the same as total return. Total return also includes any price increases or decreases in your crypto.
An example of yield
Someone lends out 100 tokens for a year at a constant APR of 5%. Without compounding and before fees, they earn 5 tokens in interest. After a year, they have 105 tokens.
If the token’s price falls during that time, those 105 tokens may be worth less in euros than the original 100 tokens. So earning yield doesn’t automatically mean making a profit.
Why is yield important in crypto?
Yield often comes up with staking, crypto lending, and DeFi. The term is also used in news about yield farming or services that offer interest. Yield farming means using crypto in DeFi applications to earn returns.
Pay close attention to where the return comes from. It may depend on demand for loans, trading activity, or newly issued tokens. Receiving more tokens doesn’t automatically mean having more buying power, because their market value can change.
A high yield percentage doesn’t guarantee a profit. Fees, falling prices, and losses on the crypto you put in can outweigh the returns. Risks vary by service and can include defaults, bankruptcy, smart contract errors, or restrictions on withdrawing crypto.
