DeFi Yield Reality Check
Filter sustainable DeFi yield from Ponzi emissions - keep the alpha, avoid the collapse.
Opportunity
DeFi advertises 20%, 50%, 100%+ APY. Most is unsustainable token emissions - you earn yield in tokens that decline faster than you earn. Real yield from actual revenue is rare but valuable. The collapse of yield farms is predictable.
The insight: DeFi health index distinguishes real yield (protocol revenue) from fake yield (emissions). Harvest real yield, avoid the Ponzi.
Trading Strategy
Core Approach: Filter DeFi opportunities by sustainability score, concentrate in real-yield protocols.
Instrument Mix:
- 40% Established DeFi (Aave, Compound, MakerDAO) - real revenue
- 30% Stablecoin lending on verified protocols
- 20% ETH staking - fundamental yield
- 10% Experimental - high yield, high risk, small size
Entry Rules:
- DeFi health index (ME10026) >60 for protocol
- TVL authenticity verified (no double-counting)
- Yield source identified (fees vs emissions)
- Protocol audited and battle-tested (ME10025 >50)
Yield Classification:
- Real yield: Trading fees, lending interest, liquidation profits
- Fake yield: Token emissions, rewards that dilute your position
- Mixed: Combination - calculate net real yield
Position Sizing by Sustainability:
- Score 80-100 (sustainable): Up to 20% of DeFi allocation
- Score 60-80 (mostly sustainable): Up to 10%
- Score 40-60 (questionable): Up to 5%
- Score <40 (Ponzi risk): Avoid
Comparison to Common Strategies:
| Strategy | Avg Return | Win Rate | Drawdown | Complexity |
|---|---|---|---|---|
| This Strategy | Varies by setup | ~60% | Managed | Medium-High |
| DCA (Dollar Cost Average) | Market return | N/A | Full drawdowns | Low |
| HODLing | Market return | N/A | -80% possible | Low |
| Active Trading | Variable | ~50% | High variance | High |
Related Hypotheses
| Hypothesis | Description | Link | Metrics | |||||
|---|---|---|---|---|---|---|---|---|
| ------------ | ------------- | ------ | --------- | \n | HY10008 | DeFi TVL is double-counted and misleading | View → | ME10026 ME10025 |
| HY10022 | Yield without cash flows is unsustainable | View → | ME10026 ME10025 | |||||
| HY10011 | Audits provide limited protection - exploits still happen | View → | ME10026 ME10025 | |||||
| HY10015 | Bridge hacks have stolen billions - cross-chain is risky | View → | ME10026 ME10025 |
Data for this Strategy
| Metric | Description | Link |
|---|---|---|
| ME10026 | DeFi Health Index - TVL authenticity, yield sustainability scoring | View API Spec → |
| ME10025 | Protocol Security Index - Smart contract audits, exploit history | View API Spec → |
| ME10001 | Stablecoin Health Index - Peg deviation, backing transparency, redemption risk assessment | View API Spec → |
| ME10029 | Compliance Risk Index - Wallet taint scoring, illicit activity exposure | View API Spec → |
For informational purposes only. Not financial advice. Past performance does not guarantee future results.