Last Updated: 2026-10-26
A yield number is useful only after you know who pays it, which asset pays it, and what it costs to leave. Lending interest, liquidity-provider fees, staking rewards and promotional emissions are different cash flows. Adding their advertised percentages can double-count income or hide a loss in the underlying position.
This is a research worksheet with synthetic examples, not a list of protocols personally tested or a promise of 5–15% returns. Documentation was reviewed on the date above; current rates, supported markets and eligibility must be checked separately.
Follow the payer and the claim
Scroll sideways to see every column. Keyboard: focus the table region and use the arrow keys.
| Mechanism | Where the reward comes from | What can make the displayed rate misleading? |
|---|---|---|
| Lending | Borrowers' interest, sometimes incentives | Changing utilization, reward-token prices, withdrawal liquidity and bad debt |
| Liquidity provision | Fees from swaps using the position, possibly incentives | Inventory changes, range selection, adverse selection and costs of repositioning |
| Staking | Network rewards routed through the staking arrangement | Provider deductions, penalties, price changes and withdrawal conditions |
| Reward emissions | A distribution of tokens or other incentives | Vesting, eligibility, dilution, sale depth and subsidy expiry |
| Yield trading | A purchased claim on principal or future income | Purchase price, maturity, accounting asset, fees and underlying dependencies |
Emissions are not automatically worthless or proof of fraud. They are also not the same as recurring income from paying customers. Value rewards at an executable sale price for the amount involved, and record unsold rewards separately from realized cash flows.
Lending: available balance is not available withdrawal liquidity
Aave's supply documentation describes interest rates changing as assets are supplied, borrowed, repaid or withdrawn. Its withdrawal instructions require sufficient available liquidity and, for borrowers, adequate collateral after withdrawal. A balance shown in the interface is not proof that all of it can be withdrawn immediately.
Synthetic 30-day comparison: deposit $1,000 equivalent, earn $4 in the supplied asset and receive reward tokens that sell for $2. Entry, claim and exit transactions cost $8 in total. With the underlying asset unchanged, the net result is 4 + 2 − 8 = −$2, or −0.2%. “Positive yield” did not produce a positive net result. If the asset loses its peg, include that value change too.
Use the exact market, chain and version in the record. A familiar protocol name does not establish that a different market has the same collateral, oracle, administrative controls or risk parameters. Borrowing against a supplied position adds liquidation risk that a supply-only comparison does not capture.
Liquidity provision: fees are only one side of the account
Here is a deliberately limited model: a full-range, two-asset, constant-product pool, equal starting asset values, no fees, no deposits or withdrawals, and arbitrage that restores the pool price. Start with 1 token worth $100 and $100 of the quote asset. The pool position starts at $200.
If the token doubles to $200, the modeled reserves become about 0.7071 token and $141.42, worth $282.84. Simply holding the starting assets would be worth $300. The pool gained $82.84 from its starting value but is 5.72% behind holding, before fees. “Impermanent loss” is this relative shortfall, not a claim that the entire position lost 5.72% in dollars.
The relative-value formula under those assumptions is 2 × sqrt(r) / (1 + r) − 1, where r is the price ratio change. At r = 5, it is about −25.46%, not exactly −25%.
Do not apply this formula unchanged to concentrated liquidity. Uniswap's documentation explains selected price ranges. A position can become entirely one asset outside its range and stop earning swap fees while inactive. Range changes require their own inventory and cost accounting. A stable-stable pair can also move sharply if one asset loses its peg.
Yield tokens: do not count the same entitlement twice
Pendle's PT/YT explanation separates a principal claim from a claim on yield until maturity. Inspect the market's accounting asset and redemption route. Buying a principal token does not automatically entitle you to the yield allocated to a separate yield token.
Hypothetical principal claim: pay 0.95 units of the accounting asset for a claim redeemable for 1 unit after 180 days. The gross return in that asset is (1 / 0.95) − 1 = 5.26% for the term, conditional on successful redemption. It is not a 5.26% dollar guarantee, and you cannot then add the underlying staking yield again unless the position actually owns that cash flow. An earlier sale depends on market price and liquidity.
For a yield token, compare its purchase price with the income it actually receives before maturity. It can expire with no remaining future-yield entitlement. For an LP position, account for its changing components, fees and incentives rather than treating it as identical to either token alone.
APR, APY and the cost of compounding
With an unchanged 10% nominal APR and costless daily reinvestment, (1 + 0.10 / 365)^365 − 1 is about 10.52% APY. That is arithmetic, not a market quote. It assumes rewards can be reinvested at the same rate and price. Claim fees, conversion costs, caps and changing rates can invalidate it.
A displayed annualization of a short reward campaign does not mean the campaign will run for a year. Record its end date and whether the calculation uses current, historical or projected prices.
An exit plan needs more than a wallet balance
Before considering a deposit, identify the official deployment and chain, exact assets and permissions, upgrade/pause controls, oracle dependencies and available withdrawal path. A hardware signer can protect key handling; it does not prevent loss from a transaction you approve or from a protocol exploit after deposit. An audit narrows questions to inspect; it is not insurance.
Keep an event log with deposited units, current redeemable units, unclaimed rewards, borrow liabilities, transaction costs and executable exit quotes. Include these failure cases:
- Rewards remain visible but cannot be claimed or sold at the displayed value.
- Lending utilization prevents an immediate withdrawal.
- One asset depegs, or an LP position leaves its earning range.
- A bridge, oracle, underlying staking service or administrative action interrupts the exit.
- A pending transaction has an uncertain outcome; reconcile its receipt before submitting another.
Do not assume a centralized Earn wrapper removes the underlying contract risk; it can add a contractual claim on the intermediary. Likewise, several protocols can share the same collateral or oracle. Compare dependencies, not just the number of logos.
Disclosure and scope: This site may earn commissions through affiliate links elsewhere. No protocol deposit, trading outcome or withdrawal was tested for this article. These examples teach accounting, not a target return. Keep records for jurisdiction-specific tax review; deposits, claims, swaps and withdrawals should not all be assigned one universal tax treatment.