Similar to traditional investors, DeFI/Crypto investors love the staking yields, attractive APR/APY etc! Many people are always having the of wet dream of FIRE (Financial Freedom and Retire Early)! One of the main way that everyone know is passive income > expenses. But how do you get passive income?
The most common is dividend income. Put 1 million of your capital at 6% yield in dividend stock would generate $60k per year or $5k per month. If your expenses is lower than $5k per month, you can quit rat race! Then you can FIRE!
For Crypto in 2021, this is even sexier. I am sure that if you are actively in the Crypto world in 2021, there are tons of protocol that advertise xxx% APR/APY or even xxxx% APR/APY? WOW! Great! We can use this DeFI yield to achieve Financial Freedom in Crypto!
How sexy would it be if you heard that this particular DeFi Protocol is generating 300% APR? Would you put your money in this DeFi site? By putting your money in this DeFI protocol, wow, you could FIRE EASILY! How does it work?
Let’s put numbers into perspective!
I am sure many of the investors/traders, wet dreamers of FIRE, Financial Freedom sure have planned and drafted the table above. Then they would look at the table above daily, making wet dreams daily, dreaming of achieving their goals. In fact, the Crypto narrative of high APY/APR make this dream come true faster!
Look at the table above. Wow! For a portfolio of 1 millions dollars, you can generate $127K per year, $10k per month, $2.5K per week, $350 per day! Yes! Financial Freedom! The best thing is for Crypto you only need to put in 3% of your 1 million capital, you can easily generate $90k per year, $7500 per month!
That mean you are using 3% of your capital to earn 71% of your passive income ($90K out of $120K)! Higher Risk gives higher return (in fact, very very high return! Together with Stablecoin yield of 20% (hehe, guess many people should know why I mentioned 20% hehe…UST, in case your don’t know), I can easily FIRE! HUAT AH!
The best part is this is only 3% of your 1 million capital, even if DeFi is higher risk, so what?
In fact, I am only risking 5% of my portfolio to get majority of my yield such that my passive income > expenses! Can quit race race and retire early!
Ok, back to real life, what happen in the end? I guess many would have know now! The 5% of your portfolio is gone! In absolute term, it is $50k. OUCH! That’s at least few months of my monthly salary! It hurt! For some who got greedy after keep getting “nice yield” after putting in small amount initially, then slowly slowly get greedy and put in larger part of your capital (like 20%or more etc), you lose much more of your hard earned money! Then Crypto investor would say Crypto Winter is here, give up on Crypto, better go back to TradiFi. Sound familar?
(In case anyone don’t understand the Crypto terminologies used above, you can refer to this post).
The above narrative are very common in 2021. Now, there is a new narrative in CT which I would like to bring to your attention.
Created by yours truely Careyourpresent
What is real yield and what does it mean? You can see many CT talking about it. Let me give a summary of this.
Real Yield is defined as yield derived from the generation of “real” revenue (like Token Swaps, AMM trading fees etc), as opposed to revenue derived from the inflationary token emissions (as in 2021).
If we time travel back to 2021, in order to acquire more users, many of the DeFi protocols incentivize liquidity/attract more TVL by offering nice attractive high XXX% or YYYY% APR/APY. I am sure that you have heard of this last year, if I provide ETH – USDC in a liquidity pool, I get this protocl DeFi token at 300% APR/APY. WOW! Passive income!
The objective by these protocols is to buy time to create more sustainable revenue-generating products (of course some evil protocol use YOU as EXIT Liquidity). Eventually, as (1) the yield comes from inflationary tokens which has no real value/revenue generated (2) more users will rotate to the next DeFi once the emission incentives from the xx protocol tokens start to decrease, the price of the token of the DeFi protocol collapse. Retail interest and greed was at an all time high in 2021. Of course there are smart sharks that still wins by farming the yield and run after know the tokens will collapse soon (Refer to this post to see how monitor sharks in Crypto).
Do you still remember, Wonderland? Time? Luna UST? Cronos, DeFI kingdoms Jewel? Mad Meerkat Finance? Etc. They marketed and entice DeFi users with high APR/APY. People FOMO goes in and whack with their hard earned money, in the end when the tides goes naked, everyone become poor. (See 80000% APY! Wow let’s ape!)
Back to current time, the narrative now is to use DeFI protocal/Dexs with Real Yield instead of “fake” yield in 2021. More real revenue = more yield paid to users. The term “Real Yield” become the main story line now. How long this narrative will substain? Your guess is as good ad mine.
For an example on real yield currently, you can refer to my post on the recent GMX. People see real revenue generated from the GMX Dex. GLP Arbitrium even give around 20% APR to users as it accrues 70% of the platform’s generated fees. These fees are also paid in your favorite ETH (this is enticing to many people especially with the upcoming ETH merge). Of course there are other protocols who are real yield generating too, but I won’t share more examples in this post.
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