Thread by @thedefiedge

The most profitable narrative in the bear market:

"Real Yield."

But what is it and how does it work?

Here's a Breakdown and 7 Protocols that Fit the Criteria:

(including a few hidden gems)

Most DeFi projects incentivize liquidity by providing inflationary tokens as rewards.

People LOVED it!

"If I provide ETH - USDC in a liquidity pool, I get X token at 200% APR!"

So projects could bootstrap growth this way.

The Race Against Time

This buys time to create more revenue-generating products.

Problem:

1) The system fails if they keep printing tokens, but there's not enough value generated.

2) These users ain't loyal. Once incentives lower, they rotate to the next bright shiny DEX.

Worthless Tokens

If you combine high token emissions with low revenue, then token prices may fall.

They were expecting 💎 tokens but they got 💩 instead.

So DeFi users are waking up to this.

If protocols can generate free cash flow, we want a piece of it.

No more Fugazi.

The Real Yield Checklist:

What qualifies as a real yield protocol?

1) There's product/market fit.

People are using the protocol regardless of market conditions or token incentives.

2) The Protocol generates on-chain revenue through its products.

3) Revenue > Operating Expenses + Token Emissions.

SOME Token emissions is fine as long as revenue is higher.

4) Are they paying in sound money? The most popular choices are ETH and stablecoins.

Here are 7 Protocols that Qualify:

#1. BTRFLY (Redacted Cartel)

BTRFLY has launched its V2.

They're transforming from a bond-centric, dilutive model toward real yield.

Lock BTRFLY for rlBTRFLY (revenue locked) to earn revenue distributed in ETH

The Yield is from their treasury and product ecosystem.

#2. Gains Network on Polygon Matic

A decentralized leveraged trading platform.

It offers up to 150x leverage on crypto, stocks, and forex.

Currently, they offer DAI Vaults and GNS-Dai LP's

Single Side GNS Staking is Coming soon

https://twitter.com/GainsNetwork_io/status/1557721278815129600

#3. Umami (Arbitrum)

1) Deposit your UMAMI for mUMAMI.

Earn steady passive income in WETH from Umami's protocol / treasury revenue.

~5% APR.

You can earn more yield via compounding with mUmami.

2) GLP / TCR USDC Pool

Est APR ~20%.

I know, 20% on stablecoins is triggering your PTSD.

1. It mints GLP to collect fees from GMX.

2. It hedges market volatility with non-liquidatable hedges from TracerDao.

Unfortunately, the pools are full at the moment due to demand.

#4. Kujira (Cosmos Layer 1)

Kujira has several products:

• Orca - Buy assets at a discounted price via liquidations

• Fin - Decentralized orderbook-style exchange

• Blue - The Core of the ecosystem

• $USK - decentralized stablecoin

The Yield Source

Stake KUJI to earn a part of Kujira's revenue.

Right now it's paying .49% APR,

The swap fees produced are real revenue that accrues to KUJI stakers

APR should increase as adoption increases and more dapps launch on Kujira.

#5. Trader Joe (Avalanche)

The #1 DEX on Avalanche.

Stake JOE into sJOE and earn Stablecoin rewards - 'USDC'

The Yield Source:

Trader Joe charges a 0.05% fee on every swap.

This is converted into a Stablecoin and then distributed to the sJOE Pool every 24 hours.

#6. Synthetix (Ethereum / Optimism)

One of the most impressive dapps in DeFi - a true innovator.

You can create synthetic assets, and trade real-world assets on-chain via Kentra.

Assets include crypto, forex, precious metals, etc.

Stake SNX

You'll earn

1. sUSD from traders (Kwenta futures, lyra options, etc)

sUSD is their native stablecoin

2. SNX inflationary rewards.

#7. GMX (Arbitrum / Avax)

A Decentralized Perp Exchange with up to 30x leverage.

1) They take a 30% fees from swaps and leverage trading.

2) It's converted to ETH / AVAX and distributed to staked GMX tokens.

Strong Tailwinds

GMX has been the talk of the town during the bear market, and for good reason.

It's the #1 dapp on Arbitrum, and adoption keeps picking up.

Research Tools

• TokenTerminal / CryptoFees - Find Revenue

• Dune Analytics - There are some great dashboards for protocols like GMX and Gains

• Messari - Token Supply Information

• Protocol Data - Look for internal dashboards from the protocols.

Questions to Ask:

• Where is the yield coming from?

• How much revenue does the protocol generate?

• What is the native token supply and emissions?

• What tokens are they paying the shared revenue in?

• What is the overall base network traction?

"Ser, you're missing X protocol"

I don't mean to fade your bags.

This is not meant to be a complete listing.

If something's missing either:

1) Tiny market cap
2) Too many emissions
3) I don't know about it (It happens)
4) I don't like it (DYDX banning Tornado Cash users)

The Risks

1) Some of the protocols may be labeled security due to the revenue-sharing model.

Jurisdictions may start trying to regulate them.

2) Quite a few of these are based on financial engineering such as perps and options.

And finally, this narrative has been going on for a few months.

GMX has gone up 3x in the past few weeks, there may be a pullback.

Fortunately, I don't think this is a "metagame", but rather a fundamental shift going forward in DeFi.

These protocols have legs.

Additional View Point

My friend @milesdeutscher wrote a great thread earlier this week.

It's always good to see a different perspective on the same topic.

(That feel when you're writing a thread, and someone else publishes it first 😩)

https://twitter.com/milesdeutscher/status/1557059384143781890

Transparency

I have small positions in GMX, GNS, Umami, and Kujira.

I'm sharing for transparency reasons.

Don't buy something because I bought it.

This is an educational thread, and not meant to entice you to buy anything.

Please do your own research.

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