Understanding yield is crucial for navigating DeFi. This guide breaks down the different types of yield, how they're generated, and the key metrics you need to calculate your true, risk-adjusted returns.
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How to Calculate Your Real Yield in DeFi
A technical guide to moving beyond advertised APY and calculating your actual, risk-adjusted returns from liquidity provision and staking.
Chainscore © 2025
Core Concepts: What "Yield" Actually Means
APY vs. APR
Annual Percentage Yield (APY) includes the effect of compounding, while Annual Percentage Rate (APR) does not. This is a foundational distinction.
- APY shows your total return if earnings are reinvested, common in liquidity pools and staking.
- APR is a simple interest rate, often used for lending protocols.
- For example, a 10% APR becomes a 10.47% APY if compounded monthly. This matters because APY gives a more accurate picture of potential growth over time.
Real Yield
Real Yield refers to profits generated from a protocol's actual revenue and paid out in a valuable, liquid asset like ETH or stablecoins, not inflationary tokens.
- It's sustainable, coming from fees (e.g., trading, lending).
- A key example is a DEX distributing a portion of swap fees to liquidity providers.
- This matters because it represents genuine value accrual, not just token printing, which is crucial for long-term protocol health and investor returns.
Total Value Locked (TVL)
Total Value Locked (TVL) is the total amount of assets deposited in a DeFi protocol. It's a key health metric but not a direct measure of yield.
- High TVL can indicate trust and liquidity.
- However, yield (APY) is often calculated as (Protocol Revenue / TVL).
- For instance, a protocol with $100M TVL and $5M annual revenue offers a 5% base yield. Understanding this ratio helps assess if a yield is competitive and sustainable.
Impermanent Loss (IL)
Impermanent Loss is the potential loss compared to simply holding assets, experienced by liquidity providers in automated market maker (AMM) pools when asset prices diverge.
- It occurs because pools automatically rebalance, selling the appreciating asset.
- For example, providing ETH/DAI liquidity when ETH price skyrockets means you end up with less ETH.
- This critically matters because your real yield must be high enough to offset this risk, making net APY the key metric.
Risk-Adjusted Return
Risk-Adjusted Return is your actual yield after accounting for all potential risks and costs, including smart contract vulnerabilities, market volatility, and impermanent loss.
- A 50% APY is meaningless if the protocol is likely to be hacked.
- It involves assessing the yield source (fees vs. inflation) and the platform's security audits.
- This is the ultimate metric for users, as it represents the true profit for the risk taken in a volatile DeFi landscape.
Yield Aggregation
Yield Aggregators (or Vaults) are protocols that automatically move user funds between different DeFi strategies to chase the highest yield, handling complex tasks like compounding.
- They automate farming, saving users time and gas fees.
- A prime use case is Yearn Finance vaults, which optimize yield from lending and liquidity provision.
- This matters because it allows users to access optimized, compounded returns without needing to be a DeFi expert, though it adds a layer of smart contract risk.
Step-by-Step Real Yield Calculation
A comprehensive guide to calculating the true, inflation-adjusted return on your DeFi investments by accounting for token emissions, fees, and price changes.
1
Gather Raw Protocol Data
Collect the fundamental metrics from the DeFi protocol to establish your baseline figures.
Detailed Instructions
Begin by identifying the specific liquidity pool or vault where your capital is deployed. Navigate to the protocol's analytics page (e.g., DeFiLlama, Dune Analytics, or the protocol's own dashboard) to gather the necessary raw data for a specific time period (e.g., the last 7 or 30 days). You need two core metrics: Total Value Locked (TVL) and protocol fee revenue. For example, a pool on Uniswap V3 on Ethereum might have a TVL of $50M and generated $250,000 in fees over the last week.
- Sub-step 1: Locate TVL: Find the current USD value of all assets deposited in your chosen pool. This is often displayed prominently.
- Sub-step 2: Identify Fee Revenue: Look for metrics like '7D Fees' or 'Protocol Revenue'. Ensure you are viewing fees accrued to liquidity providers, not treasury fees.
- Sub-step 3: Note Emission Rates: If the protocol distributes governance tokens (e.g., $UNI, $CRV), find the daily or weekly emission schedule for your pool. For instance, a Curve pool might emit 10,000 $CRV per day to liquidity providers.
Tip: Use blockchain explorers like Etherscan to verify on-chain data for transparency. For a pool address like
0x..., you can check transactions to confirm fee accruals.
2
Calculate Base Annual Percentage Yield (APY)
Convert the collected fee and emission data into a standard annualized yield percentage.
Detailed Instructions
This step transforms raw data into a comparable yield figure. First, calculate the fee-based APY. Use the formula: (Fee Revenue / TVL) * (Number of Periods per Year) * 100. If your pool generated $250,000 in fees last week on a $50M TVL, the weekly yield is 0.5%. Annualized, this is 0.5% * 52 = 26% APY. Next, calculate the emission-based APY. Convert the daily token emissions to a USD value using the token's current price. If 10,000 $CRV are emitted daily at $0.50 each, that's $5,000 daily. The daily yield is ($5,000 / $50,000,000) * 100 = 0.01%. Annualized, this adds 0.01% * 365 = 3.65% APY.
- Sub-step 1: Fee APY: Apply the formula above using your specific fee and TVL numbers.
- Sub-step 2: Emission APY: Convert emissions to USD and annualize. Be precise with the number of days in a year (365).
- Sub-step 3: Sum Yields: Add the fee APY and emission APY to get the Gross APY. In our example:
26% + 3.65% = 29.65% Gross APY.
Tip: Use a spreadsheet or a simple script to automate this. For example:
gross_apy = ((weekly_fees / tvl) * 52 + (daily_emissions_usd / tvl) * 365) * 100.
3
Adjust for Inflation and Token Price Risk
Deduct the inflationary effect of emissions and account for potential token depreciation to find the Real Yield.
Detailed Instructions
The Gross APY includes inflationary token emissions, which dilute value. Real Yield is the portion derived solely from sustainable protocol fees. To calculate it, you must subtract the inflationary component. First, determine the annual inflation rate of the emitted token. If the circulating supply of $CRV increases by 15% per year from emissions, that's the base inflation rate. However, the critical adjustment is for token price depreciation. If you believe the emitted token's price will decrease due to sell pressure from farmers, you must model this. Assume a 20% annual price decline on the emitted tokens. Your emission APY of 3.65% is now worth only 3.65% * (1 - 0.20) = 2.92% in future purchasing power.
- Sub-step 1: Estimate Token Inflation: Research the token's emission schedule and current supply to find its annual supply growth rate.
- Sub-step 2: Model Price Depreciation: Based on market analysis, estimate a likely annual price change for the reward token (e.g., -10%, -20%).
- Sub-step 3: Adjust Emission Value: Apply your price depreciation estimate to the emission APY value calculated in Step 2.
Tip: A conservative approach is to assume 100% of the emission APY is inflationary and will be offset by price depreciation, making Real Yield equal to just the fee APY (26% in our example).
4
Factor in Costs and Finalize Real Yield
Account for transaction fees, gas costs, and impermanent loss to arrive at your net, personalized Real Yield.
Detailed Instructions
Your final calculation must include costs unique to your interaction. The major cost is gas fees for compounding rewards or rebalancing. If you claim and sell emissions weekly on Ethereum, it might cost $50 in gas. On a $100,000 deposit, that's a 0.05% weekly cost, or 2.6% APY deducted. Next, assess impermanent loss (IL) risk. If providing liquidity in a volatile pair (e.g., ETH/DAI), use an online calculator to estimate potential IL based on projected price movements. If you expect 5% IL annually, deduct that. Finally, apply your personal tax considerations on rewards. Your final formula is: Real Yield = Fee APY + (Adjusted Emission APY from Step 3) - Gas Cost APY - Estimated IL %.
- Sub-step 1: Calculate Gas Cost APY: Estimate your annual gas spend for managing the position and divide by your principal.
- Sub-step 2: Estimate Impermanent Loss: Use historical volatility or scenarios to model a likely IL percentage for your holding period.
- Sub-step 3: Compute Net Real Yield: Apply the final formula. From our running example:
26% + 2.92% - 2.6% - 5% = 21.32% Net Real Yield.
Tip: For lower costs, consider using Layer 2s or sidechains. Always run this calculation periodically, as TVL, fees, and token prices are highly dynamic.
Comparing Yield Sources: Risk vs. Reward
A comparison of common DeFi yield sources, showing estimated APY, risk level, and key calculation factors for determining real yield.
| Yield Source | Estimated APY | Primary Risk Factors | Key Calculation for Real Yield |
|---|---|---|---|
Liquidity Pool (ETH/USDC) | 5-15% | Impermanent Loss, Smart Contract | APY - (IL % + Gas Fees) |
Liquid Staking (Lido stETH) | 3.2% | Protocol Slashing, Depeg | Staking Reward - (Insurance Fee + Slippage) |
Lending (Aave USDC) | 2.8% | Borrower Default, Liquidation Cascades | Supply APY - (Reserve Factor + Bad Debt Provision) |
Yield Farming (Curve CRV) | 8-25% (w/ incentives) | Token Inflation, Reward Depreciation | (Base APY + Reward APY) * (1 - Sell Pressure %) |
Real Yield DEX (GMX GLP) | 15-30% | Market Volatility, Counterparty Risk | Fees Generated / Total Liquidity - Insurance Fund Cost |
Stablecoin Savings (Maker DSR) | 5% | Collateral Devaluation, Governance Attack | DSR Rate - (Stability Fee + MKR Dilution) |
Restaking (EigenLayer) | 4-6% (extra) | Slashing Correlation, Validator Centralization | Base Yield + Restaking Yield - (Operator Cut + Penalty Risk %) |
Yield Strategy Analysis
Understanding Real Yield
Real yield refers to the actual, sustainable profit you earn from providing liquidity or staking in DeFi, after accounting for all costs and risks. It's not just the high APY number advertised; it's what you keep.
Key Components to Calculate
- Gross APY: The advertised annual percentage yield from a protocol like Aave or Compound, which includes token rewards.
- Impermanent Loss (IL): The potential loss compared to simply holding your assets, common in AMMs like Uniswap or Curve.
- Gas Fees & Network Costs: Transaction costs on Ethereum or Layer 2s that eat into profits, especially for small deposits.
- Token Inflation & Value Risk: The risk that reward tokens (e.g., SUSHI, CRV) decrease in price, reducing your real earnings.
Simple Calculation Example
If you deposit $1,000 in a Curve pool with a 10% APY in CRV tokens, but gas costs you $50 and CRV price drops 20%, your real yield might be negative. Always track your net portfolio value in a stablecoin like USDC over time.
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