DeFi & lending
Decomposing APY
A percentage means nothing until you know who pays it. DeFi has four sources of yield, and three dry up as soon as markets cool.
The four sources
Borrowing interest is the most honest source: someone pays to use your money, and the rate is variable.
Trading fees accrue to liquidity providers, but the position drifts toward the weaker asset of the pair.
Staking rewards are structural network issuance, paid in the network's own coin.
Token emissions are marketing: the protocol prints its own coin to attract users. Rarely sustainable.
Costs that eat the return
Network fees hit small positions hardest.
Vault performance fees and compounding costs come on top of that.
Tax matters too — compare net, not gross.
Judging an offer in five minutes
Identify the counterparty paying the yield. If you cannot name them, dilution is paying you.
Check track record, value secured and incident history. New plus high yield is the most dangerous combination.
Test the exit: can you close in one transaction without major slippage?
Recommended by our newsroom
External parties. Block #9 does not hold or manage your assets at these providers. Not investment advice.
Frequently asked questions
APR versus APY?
APR is the raw rate; APY assumes compounding, which only helps if you actually compound.
Is impermanent loss real?
It becomes permanent when you exit, and can exceed the fees earned.
Is there risk-free yield?
No. Even a dull stablecoin pool carries contract, peg and regulatory risk.
Read next
DeFi explained
DeFi lets you lend, borrow and trade through code instead of a bank. How it works, where the yield comes from and where it breaks.
Borrowing against crypto collateral
How borrowing against crypto works: loan-to-value, health factor, variable rates and the point where your position is liquidated.
Checklist before you deposit
A practical DeFi checklist covering contract risk, oracles, admin keys, liquidity and exit scenarios.