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Crypto market intelligence provider IntoTheBlock published a report on Thursday comparing the best risk-adjusted methods to earn yield in the world of decentralized finance .
An AMM is an automated market maker. To earn yield, DeFi users can deposit their assets into AMM pools for various trading pairs, where they help provide liquidity to enable trades. Depositors earn yield from trading fees every time a user swaps between two assets using that pool. “As new capital is added to the pool, the expected APY gets diluted,” IntoTheBlock continued. “Since expected returns decrease as more capital enters the pool, the initial size of the pool relative to the capital deployment needs to be considered.”
Yields on this strategy can be low or net negative, since borrowing rates can often exceed protocol incentives, and contains risk of both liquidation and impairment loss.
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