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The Real Yield Narrative
December 22, 2022

The Real Yield Narrative

#RealYield is a hashtag that has been trending on DeFi Twitter for a while now. It’s a topic that every DeFi fanatic is eager to get involved in. In this article, we’ll dive deeper into RealYield and why it matters.

What is RealYield?

Before going into the RealYield narrative, let’s explore the history of DEXes and Lending protocols.

In the early phases of DeFi 1.0, the DEXes and Lending protocols provided substantial incentives to liquidity providers. If you give early liquidity to these platforms, you may be rewarded with 50–500% annual percentage rates.

This APR was not derived from interest rates or trading fees but from the emission of the protocol’s tokens. Attracted to this, Liquidity providers usually farm and sell them. The tokens advertised as governance tokens turned out to be mercenary capital for LPs, and the method was eventually dubbed “farm and dump”.

The chart for one of these tokens is shown below:

Why is this happening?

Protocols that incentivize users are advantageous, as they attract new capital and provide DEXes with deep liquidity. This was an effective instrument for the distribution of governance power as well.

The reward emission came from protocol equity, indicating that the protocol gave away free money before it became profitable. In addition, these incentives had minimal or no vesting period. These are disastrous ingredients.

Any DeFi player with enough experience will immediately sell these worthless tokens and convert them into stable currencies or Blue-chips. Moreover, if the protocol releases 100,000 tokens per day to pay this 1000% and assumes nobody is selling, there should be a daily buying pressure of $100,000 (assuming the token price is $1). This is possible in a bull market but impossible in a bear market.

The alternative

Intelligent developers realized that this Ponzinomics is incompatible with their protocols and the DeFi ecosystem as a whole. The lessons learned from the failure of these protocols are:

  • Rewarding liquidity providers with the native coin is inflationary and not a mantra for success.
  • The most effective incentives are based on protocol revenue.
  • The distribution of native DEX tokens should be gradual and linear and should consider market needs, if enough liquidity is met at the initial stage itself, incentives shouldn’t continue too long.
  • Users of DeFi are more likely to hold these incentives in stable currencies or Blue-chips than in worthless tokens.

DEXs, like GMX, initiated non-inflationary, organic, and sustainable yield production. The LP suppliers were compensated with ETH/AVAX, which are blue-chip assets they prefer to hold, reducing the selling pressure.

But again, where does this ETH/AVAX come from?

GMX generates revenue from trading fees, perp interest, and liquidation. This is given to LP providers. Let’s see how it works.

GMX has a two-token model, GLP, a liquidity token, and GMX, the native token.

Users must provide liquidity as GLP, a basket of tokens.

GLP composition in Arbitrum

GLP composition in Avalanche

This GLP acts as a counterparty of all trades in GMX. If users want to go long, the protocol borrows the volatile assets of GLP, whichever is required. At the same time, if they want to go short, it borrows stable assets. If the traders lose money, their loss goes to GLP providers

70% of these fees go to GLP stakers and 30% to GMX stakers.

The yield generated for GLP stakers currently sits around 20% in Arbitrum, of which 15.5% is in ETH and the rest in Escrowed GMX. Escrowed GMX is a vested GMX token that unlocks linearly in 365 days. The Escrowed GMX token can be farmed for GMX by following a linear unlocked time curve of 365 days. The GMX token will be under less selling pressure as a result.

Margin trading plays an important part in GMX fees. It’s like GLP stakers are acting like a casino. And for those who gambled at least once — The house always wins!

Liquidations in the last three months

So how is $GLP performing?

Daily transaction volume in GMX

GMX is one of the most used perpetual exchanges in DeFi right now. It’s outperforming every DEX in this bear market.

Volume and fees generated by GMX

As more people started joining GMX, more volume and fees it generated, keeping its ETH/AVAX APR sustainable.

DeCommas “RealYield” based strategies

Currently DeCommas is building a delta-neutral strategy on top of GMX and other cross-chain assets. So let’s take a look at how our GLP strategy works.
The current composition of ETH and BTC in GLP Arbitrum is around 30% each and the rest in stables(Ignoring the other volatile asset as they have a minority share in the composition). When users deposit $100 into the strategy, it will be split in half. Half of it will be used to gain exposure to GLP. As per the current composition, GLP is exposed to $15 in ETH and BTC and $20 in stablecoins. This means the other $50 will be used to borrow $15 worth of ETH and BTC (keeping the position overcollateralized, with a healthy collateralization ratio). This position is sold in the market. When you deposit stables, take a loan in volatile assets, and sell, it creates a short position. So effectively:

A $30 ETH+BTC long position in GLP and a $30 ETH+BTC short position in Aave keep our strategy neutral. But at the same time, you will receive the yields for providing GLP liquidity at GMX.

Simplistic overview of DeCommas’ GLP strategy

The DeCommas GLP strategy aims to achieve market neutrality at the most efficient rate. Rebalancing will occur at an optimized interfall, keeping rebalancing costs in check. Based on DeCommas backtesting data this leads to 8–12% APR. So far, DeCommas has tested multiple iterations of this, including hedging by GLP’s target weights, GLP’s average historical weights, and GLP’s current rates at the start of the test. These returned moderate to good yields, around 6–8%.

When prices go up, the GLP position will be profitable, but the Aave position will be at a loss. DeCommas then rebalances Aave’s position and returns to a healthy collateralization ratio. When prices go down, GLP positions will be in loss, but Aave short will be profitable, and the algorithm acts quickly to rebalance again to maintain net neutrality.

Backtesting shows that the strategy is able to deliver 50–75% of GLP yield, which can realistically be 8–10%. Hedging costs are around 1–2% annually, which is the minimum.

With the upcoming DeCommas strategies, you can participate in the RealYield narrative with little exposure to volatile assets and, at the same time, get a noninflationary natural yield.

DeCommas is not the only project delivering strategies based on $GLP. Recently something we’re calling the “GLP Wars” has kicked off, and we’ve outlined the events in the space here.

More protocols joining

GMX is just marking the start of this movement. Multiple protocols started building on the RealYield narrative. Let’s take a look at a few.


Curve interface

Curve is an OG, well-battle-tested stable swap pool on multiple chains. Protocols may pay you native tokens if you provide liquidity to their pools or if you participate in weekly bribes.

Gains Network
Gains is a perpetual trading platform where you can trade crypto, stocks, and even forex with 1000x leverage. Users can provide DAI in the vault, which is used as liquidity for this trade.

Daily users in Gains

Cap Finance

Currently, you can trade ETH and BTC with up to 50x leverage in Cap finance. The APYs are intrusive. Stake CAP token to receive protocol revenue sharing in USDC. With the next version of CAP, they plan to include synthetic asset trading, consisting of multiple asset classes.

Stader Labs
They are a Liquid staking derivative protocol in multiple chains, including BNB, NEAR, POLYGON, TERRA, HBAR, ETH, etc. you can stake these tokens to receive liquid staking derivative tokens, which auto compound the staking rewards. They plan to include revenue sharing in the staking token (ETH, NEAR, BNB, etc.).

You can be a decentralized hedge fund manager in STFX. You create an STV, where you can create a single-time use fund. This fund will be open for users to provide liquidity. You can open a long or short using this fund. If you win, the users who offer liquidity will get their PNL shared, and you will get a performance fee.

STFX will receive a claim to 80% of protocol revenue, with the remaining 20% accruing to the DAO treasury. Rewards will be paid out to stakers in USDC weekly.

IPOR labs is another innovative RealYield protocol. Their IPOR rate, which is a mean of Aave and Compound rate, can act as an index rate of DeFi. Currently, users can hedge or speculate using the IPOR rate by using the instrument called interest rate swaps. You pay to float and receive a fixed interest rate for shorting the interest rate; for longing, it’s the other way. This can be a robust protocol as DeFi lacks fixed-interest products.

The interest payout is from LP providers of DAI, USDC, and USDT. LPs benefit from spreads, liquidation, and opening fees, which currently stand at 9–12%.

The future of Real Yield, and why it matters

If you search the RealYield tag on Twitter, you will find many protocols that do not distribute incentives through inflationary yields. This is the correct direction in which DeFi should navigate. These methods and yields will suit conventional investors who evaluate an asset’s PE ratio and cash flows before investing.

Retail investors are unwilling to hold a coin with 500% APY and a daily decline of 10%.

However, investors should rely on more than the real yield narrative when making investment decisions. When GMX gained popularity, numerous GMX forks appeared in each chain. These forks may be unsafe. Therefore, conduct research before investing.

Want to discuss the concept of #RealYield with the DeCommas community? Come say hi on our social media channels on Discord and Twitter!

Decommas doesn’t audit nor endorses any of the protocols listed, we just focus on providing accurate data.