Exploring On-Chain Certainty in a Turbulent Economic Environment: An Analysis of Three Types of Encryption Yielding Assets

When the world economy is full of uncertainty, "certainty" itself has become a scarce asset. In this era where black swans and gray rhinos coexist, investors are not only pursuing returns but also seeking assets that can withstand volatility and have structural support. The "encryption yield-bearing assets" in the on-chain financial system may represent this new form of certainty.

These crypto assets with fixed or floating returns have re-entered the investors' sight, becoming a beacon for seeking stable returns in turbulent market conditions. However, in the crypto world, "interest" is no longer just the time value of capital; it often results from the interplay of protocol design and market expectations. High yields may stem from real asset income, or they may conceal complex incentive mechanisms or subsidization behaviors. To find true "certainty" in the crypto market, investors need to deeply understand the underlying mechanisms, rather than merely focusing on interest rate tables.

Since the Federal Reserve began its interest rate hike cycle in 2022, the concept of "on-chain interest rates" has gradually entered the public's view. In the face of a long-term risk-free interest rate of 4-5% in the real world, crypto investors have begun to reassess the sources of returns and risk structures of on-chain assets. A new narrative has quietly formed – Yield-bearing Crypto Assets, which attempts to create financial products "competing with the macro interest rate environment" on-chain.

However, the sources of income from yield-bearing assets vary significantly. From the cash flow "generated" by the protocol itself, to the illusion of income reliant on external incentives, and to the integration and transplantation of off-chain interest rate systems, the different structures reflect radically different sustainability and risk pricing mechanisms. We can roughly categorize the current yield-bearing assets of decentralized applications (DApps) into three types: extrinsic yield, intrinsic yield, and real-world asset (RWA) linkage.

Exogenous Returns: Subsidy-Driven Interest Illusion

The rise of exogenous returns reflects the logic of the early rapid growth of DeFi—market substitution with "incentive illusion" in the absence of mature user demand and real cash flow. Just like early ride-sharing platforms exchanged subsidies for users, after Compound launched "liquidity mining," multiple ecosystems subsequently introduced huge token incentives, trying to attract user attention and lock up assets through "yield distribution."

However, this type of subsidy is essentially more like a short-term operation where the capital market "pays for" growth metrics, rather than a sustainable profit model. It once became the standard for the cold start of new protocols—whether it's Layer2, modular public chains, LSDfi, or SocialFi, the incentive logic is the same: relying on new capital inflows or token inflation, with a structure resembling a "Ponzi" scheme. The platform attracts users to deposit money with high yields, and then delays the realization through complex "unlocking rules." Those annualized returns in the hundreds or thousands are often just tokens "printed" out of thin air by the platform.

The collapse of Terra in 2022 is a typical example: the ecosystem attracted a large number of users by offering up to 20% annual yield on UST stablecoin deposits through the Anchor protocol. The yield primarily relied on external subsidies rather than real income from within the ecosystem.

Historical experience shows that once external incentives weaken, a large number of subsidized tokens will be sold off, damaging user confidence and leading to a death spiral decline of TVL and token prices. According to data statistics, after the DeFi boom faded in 2022, about 30% of DeFi projects saw their market value decline by more than 90%, which is often related to excessive subsidies.

Investors looking for "stable cash flow" need to be more vigilant about whether there is a real value creation mechanism behind the returns. Promising today's returns with future inflation is ultimately not a sustainable business model.

Endogenous Returns: Redistribution of Use Value

In short, endogenous income is the revenue earned by the protocol through "actual business" and distributed to users. It does not rely on issuing tokens to attract people or external subsidies, but rather generates income naturally through real business activities such as lending interest, transaction fees, and even penalties from default liquidations. This income is similar to "dividends" in traditional finance, and is therefore also referred to as "quasi-dividends" in the context of encryption cash flow.

The biggest characteristics of this type of revenue are closed-loop and sustainability: the logic of making money is clear, and the structure is healthier. As long as the protocol is operating and users are using it, it can generate income without relying on market hot money or inflation incentives to maintain operation.

To understand its "hematopoietic" mechanism, we can more accurately assess the certainty of returns. We can categorize this type of income into three prototypes:

The first type is termed "interest rate spread type". This is the most common and easiest to understand model in the early days of DeFi. Users deposit funds into lending protocols, which match borrowers with lenders and earn interest rate spreads. Its essence is similar to the traditional bank's "deposit and loan" model — the interest in the fund pool is paid by borrowers, and lenders receive a portion as profit. This type of mechanism is transparent in structure and efficient in operation, but its yield level is closely related to market sentiment. When overall risk appetite declines or market liquidity contracts, interest rates and yields will also decline accordingly.

The second type is "fee rebate type". This type of revenue mechanism is closer to the model of shareholders participating in profit distribution in traditional companies, or a revenue-sharing structure where specific partners receive returns based on revenue ratios. Within this framework, the protocol returns a portion of operational income (such as transaction fees) to participants who provide resource support, such as liquidity providers (LP) or token stakers.

Taking a certain decentralized exchange as an example, the protocol allocates a portion of the fees generated by the exchange to users who provide liquidity, proportionately. In 2024, a certain lending protocol provided an annualized return of 5%-8% for stablecoin liquidity pools on the Ethereum mainnet, while its token stakers could earn over 10% annualized returns during certain periods. These revenues come entirely from the protocol's endogenous economic activities, such as lending interest and transaction fees, and do not rely on external subsidies.

Compared to the "interest rate spread" mechanism, which is closer to the banking model, the "fee rebate" yield highly depends on the market activity of the protocol itself. In other words, its returns are directly linked to the protocol's transaction volume—more transactions lead to higher dividends, while reduced transactions result in fluctuating income. Therefore, its stability and ability to withstand cyclical risks are often less robust than that of the lending model.

The third type is "protocol service type" income. This is the most structurally innovative type of endogenous income in encryption finance, and its logic is similar to the model in traditional business where infrastructure service providers offer key services to customers and charge fees.

Taking a certain re-staking protocol as an example, it provides security support for other systems through the "re-staking" mechanism and thus earns rewards. This type of income does not rely on lending interest or transaction fees but comes from the market pricing of the protocol's own service capacity. It reflects the market value of on-chain infrastructure as a "public good." This form of return is more diverse and may include token points, governance rights, and even anticipated returns that have yet to materialize in the future, showcasing strong structural innovation and long-term sustainability.

In traditional industries, it can be compared to cloud service providers offering computing and security services to enterprises in exchange for fees, or financial infrastructure institutions (such as custodians, clearinghouses, and rating agencies) providing trust support for the system and generating revenue. Although these services do not directly participate in terminal transactions, they are an indispensable underlying support for the entire system.

On-chain Real Interest Rates: The Rise of RWA and Interest-bearing Stablecoins

More and more capital in the market is beginning to pursue a more stable and predictable return mechanism: on-chain assets anchored to real-world interest rates. The core of this logic lies in connecting on-chain stablecoins or encryption assets to off-chain low-risk financial instruments, such as short-term government bonds, money market funds, or institutional credit, thus achieving "certainty of interest rates in the traditional financial world" while maintaining the flexibility of encryption assets. Representative projects include a certain DAO's allocation to T-Bills, a token launched by a fintech company linked to ETFs, a company's short-term government bond token, and a tokenized money market fund from a certain asset management company. These protocols attempt to "bring the Federal Reserve's benchmark interest rate on-chain" as a basic yield structure.

At the same time, interest-bearing stablecoins as a derivative form of RWA are also starting to come to the forefront. Unlike traditional stablecoins, these assets are not passively pegged to the US dollar but actively integrate off-chain returns into the tokens themselves. A typical example is a certain protocol's interest-bearing stablecoin, which accrues interest daily, with the source of returns being short-term government bonds. By investing in US Treasury bonds, it provides users with stable returns, with yields close to 4%, higher than the 0.5% of traditional savings accounts.

They are trying to reshape the usage logic of the "digital dollar" to make it more like an on-chain "interest account."

With the connectivity of RWA, RWA+PayFi is also a scenario worth paying attention to in the future: directly integrating stable yield assets into payment tools, which breaks the binary division between "assets" and "liquidity". On one hand, users can enjoy interest-bearing returns while holding cryptocurrencies, and on the other hand, payment scenarios do not need to sacrifice capital efficiency. Products like the USDC automatic yield account on L2 launched by a certain cryptocurrency exchange (similar to "USDC as a checking account") not only enhance the attractiveness of cryptocurrencies in actual transactions but also open up new use cases for stablecoins—transforming from "dollars in an account" to "capital in active circulation".

Three Indicators for Finding Sustainable Income-Generating Assets

The logical evolution of "encryption of yield-bearing assets" actually reflects the market's gradual return to rationality and the process of redefining "sustainable returns". From the initial high-inflation incentives and governance token subsidies to the increasing emphasis by protocols on their own blood-producing capacity and even connecting to off-chain yield curves, the structural design is moving out of the rough stage of "involution-style capital extraction" towards a more transparent and refined risk pricing. Especially in the current environment of high macro interest rates, if the encryption system wants to participate in global capital competition, it must build stronger "return rationality" and "liquidity matching logic". For investors seeking stable returns, the following three indicators can effectively assess the sustainability of yield-bearing assets:

1. Is the source of income "endogenous" and sustainable? Truly competitive yield-bearing assets should derive their income from the protocol's own operations, such as lending interest and transaction fees. If returns mainly rely on short-term subsidies and incentives, it resembles "passing the parcel": as long as the subsidies are present, the returns remain; once the subsidies stop, the funds leave. This kind of short-term "subsidy" behavior, if it becomes a long-term incentive, will deplete project funds and easily lead to a death spiral of decreasing TVL and token prices.

2. Is the structure transparent? Trust on-chain comes from openness and transparency. When investors leave the familiar investment environment of traditional finance, which has intermediaries like banks as endorsements, how should they discern? Is the flow of funds on-chain clear? Is the interest distribution verifiable? Is there a risk of centralized custody? If these questions are not clarified, they will belong to black-box operations, exposing the system's vulnerabilities. A financial product with a clear structure and an on-chain public, traceable mechanism is the true underlying guarantee.

3. Is the return worth the opportunity cost in reality? In the context of the Federal Reserve maintaining high interest rates, if the returns from on-chain products are lower than the yields of government bonds, it will undoubtedly be difficult to attract rational capital. If on-chain returns can be anchored to real benchmarks like T-Bills, it would not only be more stable but could also become an "interest rate reference" on-chain.