Where Does APY/Yield Come From?

🏦 Lending Protocols
Examples: Aave, Compound, Morpho
How it works: Users supply assets to lending pools while borrowers pay interest to access them. Lenders earn a share of this interest.
Yield source: Borrower interest payments
Risks: Borrower defaults (mitigated by over-collateralization), protocol or smart contract vulnerabilities

🌾 Yield Farming
Examples: Yearn, Harvest, Convex
How it works: Automated strategies move funds across DeFi platforms to maximize returns and compound yields.
Yield source: Lending interest, trading fees, protocol rewards
Risks: Strategy or smart contract failures, gas costs, and complexity

💧 Liquidity Provision
Examples: Uniswap, Curve, Balancer
How it works: Users provide assets to trading pools and earn a share of swap fees and incentives.
Yield source: Trading fees and liquidity rewards
Risks: Impermanent loss, contract exploits, lower yields in quiet markets

🎯 Protocol Incentives
Examples: Governance tokens, liquidity mining, airdrops
How it works: Protocols distribute native tokens to reward users and encourage participation.
Yield source: Token emissions and reward programs
Risks: Token volatility, emission decay, supply dilution

📈 Leveraged Strategies
Examples: Leveraged staking, recursive lending
How it works: Users borrow against collateral to amplify exposure and potential gains.
Yield source: Enhanced base yields minus borrowing costs
Risks: Liquidation risk, fluctuating interest rates, higher complexity