A comprehensive understanding of DeFi yield begins with a clear definition of the concept, an appreciation of why it exists, and an awareness of the multiple forms it can take. Yield is not merely a figure displayed on a dashboard; it is the expression of the economic forces that sustain decentralized protocols. Whether derived from lending, liquidity provision, staking, insurance, fixed-rate products, or incentive distributions, each yield source reflects a specific service performed for the network and carries its own profile of opportunities and risks.
Sustainability is central to yield assessment. Market volatility, reliance on incentives, speculative behavior, leverage, and underlying activity levels can all determine whether a return persists over time or proves fleeting. This reality means that portfolio managers cannot evaluate yield in isolation. Instead, they must integrate it into a broader investment framework that balances income generation with capital preservation and risk management.
In portfolio construction, yield-bearing positions can serve multiple functions, anchoring stability, providing tactical opportunities, or enhancing returns through leverage. But they also introduce unique exposures, from impermanent loss to incentive decay, that require active monitoring and disciplined allocation. The most resilient portfolios will combine yield sources with complementary characteristics, ensuring that no single driver can compromise the portfolio’s overall performance.
By grounding investment decisions in a rigorous understanding of yield, investors position themselves to capture the genuine opportunities that DeFi offers while avoiding the pitfalls of unsustainable returns. This foundation is essential, because yield in DeFi does not exist in a vacuum: it is inseparable from the risks inherent in decentralized systems. The next chapter will examine those risks in detail, providing the analytical tools needed to assess not just the potential rewards, but the full spectrum of uncertainties that accompany them.