Yield: Understanding Cash Flow Return Metrics and Their Application in Cryptocurrency Markets

The basic definition of interest rate

The yield measures the proportion of cash returns from an investment, usually expressed as an annualized percentage. The most common types in tradition are:

• Dividend Yield: Calculated by dividing the annual dividend by the stock price. For example, if a company pays an annual dividend of 5 yuan and the stock price is 100 yuan, the yield would be 5%.
• Bond Yield: It is the coupon interest divided by the market price of the bond. If the face value is $1,000, the annual interest is $30, and the market price is $900, the yield is approximately 3.33%.

The yield reflects the efficiency of cash flow, but usually does not include the capital gains portion from price fluctuations.

The performance of the interest rate in the crypto market

The forms of yield in the crypto market are more flexible and diverse, mainly including:

• Staking Yield: Mainly comes from token staking rewards on PoS blockchains such as ETH and SOL, with relatively stable returns and lower risk, but rewards are affected by the network’s staking ratio.
• DeFi liquidity mining yield: Provide funds in liquidity pools to earn trading fees and platform token subsidies. The rewards are high but come with impermanent loss and contract risk.
• Stablecoin pool yield: Deposit stablecoins such as USDT and USDC into lending or aggregation protocols to earn interest, with lower risk but still potential risks from smart contracts.
• CeFi Interest Rate: Centralized exchanges offer fixed or flexible savings products, which are convenient to operate but require trust in the platform’s solvency.

The difference between yield and annualized return

The yield focuses on the “cash return ratio” without factoring in asset price fluctuations, emphasizing stability and continuous income. The annualized return includes price changes and compounding effects, providing a better reflection of overall investment performance. In the DeFi scenario, APY often refers to the annualized return, so investors must distinguish between the two to avoid confusion.

Investing in high interest rates should be cautious of risks

High interest rates in the crypto world are often accompanied by significant risks, including:

• Is the source of income sustainable? If the platform token subsidy stops, the yield may drop instantly.
• The supply pressure from token inflation and unlocking may lead to price weakness.
• Projects claiming extremely high APY may have actual daily returns lower than expected, it is recommended to use tools to verify real returns.

Summary

The yield rate is an important indicator of investment returns, especially in the crypto market, serving as a reference for understanding capital flow and risk levels. Investors should rationally assess the sources of income and actual returns, balance risks and profits, and develop appropriate asset allocation strategies.