Yield Primitives
Since the advent of DeFi there are several new ways to generate value on the blockchain. Such as in the existing centralized financial system there are several business models. For example an exchange like Nasdaq/Binance could be programmed with smart contracts and executed in an decentralized fashion. These DEXes already exist (e.g. Uniswap/Sushiswap) where they facilitate decentralized trades and capture a small trading fee. Those profits could be redistributed to users. But beside that there are other crypto-native yield-generating primitives on DeFi.
Example DeFi
Example Traditional Finance
Decentralized Exchanges / Automated Market Making
Generating profits through trading fees. In addition the model of automated market making (AMM) enables anyone to be a market maker (also called liquidity provider) and capture fees from this activity
Nasdaq / Virtu Financial
Lending out money for a fixed/variable interest rate
Yield Farming
Distributing tokens to early liquidity providers in order to attract liquidity for the protocol
<new primitive>
Staking the native protocol token to get a cut from the rewards generated
Dividend distribution in stocks
Vaults/Yield Aggregators
Automating Yield Farming activities through compounding/selling/combining of farms based on smart contacts
Actively Managed Funds
Retroactive Airdrop
Rewarding early users with a governance token in hindsight
<new primitive>
Yield Bearing Tokens
Tokens which accrue value through underlying mechanisms
<new primitive>
In addition there are constantly new primitives generated in the space of asset management (e.g. Index Coop, Enzyme), Layer 1 Staking (e.g. Stake ETH2, Stake Pokdadot), Options (e.g. Hegic, Opyn), MEV (e.g. KeeperDAO), Algorithmic Stablecoins (e.g. Ampleforth) etc.
We expect an explosion in DeFi activity in the coming months. As the ecosystem growths and the activity gets distributed across various chains, it also gets increasingly difficult to get an overview on what's going on. Especially since there are constantly new yield-primitives generated, it's really hard to know where to find the best rates.
There are currently 100bln USD locked in DeFi. We expect this number to 10x in the coming month (Source Defillama).
Copy link