DeFi basics — APY claims
A post explained DeFi as permissionless lending and borrowing and cited typical headline APYs of roughly 5%–15% on platforms like Aave and DEX liquidity pools such as Uniswap. (x.com)
Decentralized finance, or DeFi, lets people lend, borrow, and trade crypto through software, but the headline annual percentage yields are variable and can fall fast. (aave.com) On Aave, users supply tokens to a shared pool and earn a variable supply annual percentage yield, while borrowers post more collateral than they borrow because the loans are over-collateralized. (aave.com) Aave says supplied assets can be withdrawn with earnings, but borrow positions are monitored with a “health factor,” and collateral can be liquidated if that metric drops below the threshold. (aave.com) That makes a lending yield on Aave different from a bank savings rate: the return moves with onchain demand for borrowing, and the borrower is taking crypto-collateral risk rather than unsecured credit risk. (aave.com) Liquidity pools on Uniswap work differently. Providers deposit token pairs so traders can swap against the pool, and the provider earns a share of swap fees only while that liquidity is active. (docs.uniswap.org) Uniswap says pools can charge different fee tiers, including 0.05%, 0.30%, and 1%, and those fees are not automatically reinvested in version 3 positions. (docs.uniswap.org) A quoted annual percentage yield on a liquidity pool is usually an estimate based on recent trading fees, token incentives, or both, not a fixed contractual rate. Annual percentage yield also differs from annual percentage rate because annual percentage yield assumes compounding and annual percentage rate does not. (coinbase.com) The biggest extra risk in a pool is impermanent loss, which happens when the two token prices move apart after deposit and leave the provider with less value than simply holding the tokens. Uniswap and Coinbase both describe that risk as a core trade-off of providing liquidity. (support.uniswap.org) (coinbase.com) Uniswap says concentrated liquidity can increase the chance of impermanent loss because providers choose a custom price range where their capital is active. If the market moves outside that range, the position stops earning fees until the price returns. (docs.uniswap.org) (support.uniswap.org) Crypto platforms and educators also warn that DeFi returns carry software, smart contract, and exploit risk in addition to market risk. Coinbase says security vulnerabilities have previously led to losses across multiple protocols. (help.coinbase.com) So a 5% to 15% headline number can describe a real recent yield in DeFi, but it is usually a moving target tied to borrowing demand, trading volume, token prices, and protocol risk. (aave.com) (docs.uniswap.org)
