Where APY comes from: the complete list of DeFi yield sources

There are no percents out of thin air in DeFi: any yield is one of six sources (or a mix). Identify the source - you know the risk.

The six sources

• 1. Protocol emission. A governance token is printed for you. You are not earning - you are being diluted in the hope of selling the farm token before it drops. The classic "400% APY" melting together with the reward's price.
• 2. Real users' fees. A share of swaps (LP), trading fees, borrowing. The most honest source - but it requires real volumes.
• 3. Borrowers' interest. Lending: your rate = someone else's need for credit. Honest and cyclical.
• 4. The base network's emission. Staking: the consensus inflation reward. Modest and predictable.
• 5. Funding/basis. Delta-neutral strategies collect the skewed crowd's payments. Works while the crowd is skewed.
• 6. Others' losses. Liquidation bonuses, MEV, exit-fee "games". The predator's yield - the most volatile.

How to apply it

The question for any pool: which item do the percents come from? If the documentation gives no answer in five minutes, the answer is "item 1" or worse. If the source is emission, count the yield in the base asset factoring in the reward's price collapse. A "real yield" label without on-chain fee confirmation is marketing.