If you can't explain the yield >> You are the yield.

5d
LeoFinance
8 Min Read
1607 words

Yield_Sign.jpg

If you can't explain the yield...

This is something that Bitcoin maximalists have been saying for a while now in response to DEFI applications. If I'm being honest it's kinda funny it took them so long to come up with this ridiculous statement. DEFI has been around for how long? They've only been saying this for a couple of months. Like the Bitcoin network itself, maximalists are very slow to adapt to this changing environment.

The funny thing about yield is that it's not hard to explain.

It doesn't take much more effort to educate users about yield, but instead they just come up with toxic 'shitcoin' slogans like this. Want to know why? Because they don't actually understand the yield so they need a catchphrase to undermine the entire movement. Talk about throwing the baby out with the bathwater in the most ignorant way possible.

Although we shouldn't really fault maximalists for thinking that printing inflation is a bad idea. That is literally the number one feature of Bitcoin they've been rallying around since day one.

21M 21M 21M 21M 21M

Do maximalists not realize that Bitcoin has yield as well. Do maximalists do a good job of explaining Bitcoin yield and the process of mining? No, no they do not. They call Bitcoin a "store of value" when it is clearly a "store of security". All yield on Bitcoin gets pumped into securing the network. As the network grows, less inflation is needed to secure the network, as the network starts securing itself from the infrastructure that's been built and the rising token price justifies a higher hash rate even though inflation has been cut in half. It's an interesting system, but it's very basic and will never be a stable asset.

Stability requires inflation/yield/elasticity.

One of these days someone is going to create a crypto that's better than USD in every way (including price flux). Once that happens all these "stable-coins" gonna go right out the window. But I guess that's a topic for another post... one that I've already written like 5 times.

Explaining the yield is not hard.

Almost all yield goes into incentivizing liquidity providers to create entrance and exit liquidity using AMM. An LP that doesn't provide exit liquidity is one where both sides of the LP feed value into the system (which builds x2-x4 more raw value). There are only two kinds of yield I've seen that are extremely toxic and bad for the ecosystem.

1. Allocating yield to a random LP

If the farm in question is allocating governance tokens to something like a BTC/ETH pair, who does that benefit? It leeches value from the governance token into the hands of BTC/ETH holders. It is in no way helpful to the DEFI application, yet the defi application like the "total locked value" is a good thing.

Total locked value is a false metric

Anyone that focuses on this number is being ridiculous. It doesn't matter if a billion dollars is locked on our network if that liquidity exists as two different networks that have nothing to do with our network.

The reason why LPs like BTC/ETH exist at all is that they act as relics of the past. When DEFI was first invented these devs wanted to lure deep pockets into their new project. What better way to do this than allocate yield to a BTC/ETH pair? That's a one trick pony. It's never going to work again, and yet new defi projects see the success of the old projects and keep trying to copy what the old projects did. It's a TERRIBLE strategy. Just terrible.

Now that BTC/ETH holders aren't going to randomly be lured into the 1000th defi token that pops up, allocating yields to pools like this is a 100% loss to the underlying network and only a gain to BTC/ETH holders who will farm until they find something that offers higher yield somewhere else. It's a pretty simple equation, and maximalist grossly oversimplify it in a one sentence nothing-statement.

2. Allocating yield to single-staking pools

  • This is what UST did and we all saw what happened to LUNA.
  • This is what the kingdom does on CUB/POLYCUB.
  • This is what HBD does when we stake it into the savings account.

Allocating yield to a single staking pool is really dumb, but people just love doing it for whatever reason. Doing this provides zero liquidity and zero utility to the network. It's actually not as bad as allocating to an LP that's not going to support us, because it does have one single good function:

Elasticity.

With an elastic yield on the single-staking pool, the network and push and pull the amount of money in the 'lake'. Always think about money in terms of liquidity and water. It makes it much easier to understand. In any case, single-staking allows us to push money into the lake when price is low and we need to increase it (increase yield), and pull it out when the token is overbought (decrease yield).

The problem with this is that not a single defi network in existence actually knows how to do this (let alone have the discipline to make number go down on purpose). The percentage of tokens in the single staking pool is an obvious indicator of how healthy the network is doing. If more than 50% of the all the tokens are in a single-staking pool that provides no liquidity and is only needed for elasticity, that's a huge problem.

The goal for the single staking pool would be to have a balanced position of tokens. Probably like 10%-25%. That way if token price spikes there is still money in this pool that can be dumped onto the LPs. Having 0% would be an indicator that supply shock has occurred and there are no more tokens left to sell. But at the same time that's not even that bad of a thing because that means 100% of the tokens are in the LPs. When 100% of the tokens are in the LP, liquidity providers split the difference of slippage with new users. New users will lose less money pushing the price up because LPs are taking impermanent losses.

On the other side of the coin, if 75% of the tokens are in the single staking pool (COUGH CUB, COUGH POLYCUB) then that creates a bit of a premine situation where it's hard for new users to justify entering the system. How could they when 75% of all tokens in supply are just sitting there waiting to dump on them? An extremely high single-staking percentage is a sign number will go down. Because again, how could it not? Single staking doesn't provide liquidity and literally the only thing that can be done with it is being dumped onto the market.

Extra utility for single staking.

In reverence to CUB and POLYCUB, @khaleelkazi is taking steps to add more utility to single-stakers. Governance is being added so that the single-staking pool controls LP yields, which again could become a conflict of interest as it is possible that one group of people would be controlling another by design (single-stakers vs LPs). The idea is that everyone could be a single-staker and an LP for this to all work, and it very well might work out fine. This really is the cutting edge of experimentation. Can't know until we've tested it.

Another utility function that POLYCUB will implement is taking loans from the vault using polycub collateral. This is a function that could easily 10x the price. Which again, wouldn't be a good thing because a pump like that would be created by leverage trading and buying more polycub on leverage, and then the dump would liquidate all the collateral. Ideally we mute the pump by lowering yield on the single staking pool, but polycub is going to have so little yield by that time that this isn't really going to be an option. But I digress, we'll figure it out eventually.

Conclusion

Yield is not a mysterious concept. When you see a maximalist say, "If you can't explain the yield, you are the yield," all it means is that this person doesn't understand what is going on and they don't care to, to the point of just saying everything that isn't Bitcoin is a shitcoin. This is lazy, ignorant, tribalist, and toxic. Funny considering maximalists act like they are so smart and educated, yet continually come up with othering slogans like this that fracture the entire industry.

The ONLY type of yield that leeches value from the community is allocating to an LP pair where both networks on either side don't support the platform in question.

Single staking pool yield is an elastic variable that all networks wrongfully use to pump the price when they should be using it to stabilize the price. However, single staking keeps all the value inside the network (IE no one on the network is being turned into yield like a derelict LP), so even in the case of toxically pumping more than 50% of all tokens in circulation into single-staking... this still doesn't turn users into yield.

The subset of yields that turns users into yield is very very tiny. And yet maximalists are like NOPE IF YOU CAN'T EXPLAIN THE YIELD YOU ARE THE YIELD. As if their perception of the world actually changes reality around them. Talk about living in a bubble.

Uh yeah, explaining the yield is not hard.
Try doing some research.

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Yield is to compensate for impermanent loss to liquidity providers plus an interest for staking their coins while they can't do anything else with them and assume some degree of risk. The users of the pool who exchange one coin for another pay for everything. That's a healthy way of looking at it.

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I like to Grow Yield

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best of all, i love this article.

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BTC maximalists have become more annoying than Vegans, CrossFitters, Extreme Feminists and liberals! Basically everone who "tribalized" with one crypto network, is annoying!

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and shitcoiners are annoying taking leveraged bets on unbacked garbage and then rekking themselves and making bitcoin look like the problem

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Are you vegan also? 😂

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Lol nah been eating out your mum for a while now

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Sorry but my mom is dead. Maybe as dead as your social life

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Most users are yield actually. Suppose I spent $1000 on CUB at $1 price. I'd have 1000 CUB to deposit to some kingdom or den with very high APR. Let's say after a couple of months I got yield of 500 CUB printed from thin air. The CUB price at that time would drop to $0.5. Thus I would have 1500x0.5=750 USD. That's how I became the yield

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5d (edited)

There there is a terrible disconnect as to how you came to this conclusion.
You assume you lost money because someone else siphoned that money into their own pocket.
Who was this mystical entity?
They don't exist.
Try again.

If Bitcoin crashes 50% and you lose 50% of your money.
Are you the yield?
Obviously that doesn't even make sense, yet you used this exact same logic.
Worth noting that most people make this mistake.
It is the most common mistake made when trying to explain this concept.
Worth boosting to the top of this article.

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Who was this mystical entity?
They don't exist.

Of course they do. They are the guys who own the lp/kingdom/den or whatever it's called

Bitcoin is slightly different because it's more decentralized and there is no yield, only "value". So if I lost money on Bitcoin I would be the value ;)

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Lol @chekohler has been saying this for a while. Lots of DeFi is shit!

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4d (edited)

Lol but no I am a dumb cunt who is "close-minded" and "tribalist", but no one can give me a straight answer when I ask a question, my comments section is a ghost town on here, because its better to ignore than engage but my DMs are way more active where people will tell me yeah that twat is full of shit lol

In fact I used the same title 10 days ago but go ahead and look at the stark difference in the responses

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Yeah I know lol I saw the title and thought hmm Che wrote about this!

I think you have a good delivery and talk about things that people don’t want to pay attention to with the shitcoins. It’s that head in the sand type mentality it seems.

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Uh yeah, explaining the yield is not hard.
Try doing some research.
— how I wish this wasn’t an irony .

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![Class is now in session](file://hhsc.org/hmc/Profiles/jlewis/Desktop/teaching-311356__340.webp)

Hi @edicted

Please provide an example of this:
An LP that doesn't provide exit liquidity is one where both sides of the LP feed value into the system (which builds x2-x4 more raw value).

Thank you.

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