In recent years, decentralized finance, or DeFi, has gained popularity due to the capability of earning passive income. One of the key elements of this ecosystem is yield-bearing assets, which allow users to derive profit without active trading.
What Is a Yield-Bearing Asset in DeFi?
Yield-bearing assets are crypto tokens that automatically generate rewards or interest simply by being held. Unlike regular cryptocurrencies, yield-bearing assets allow users to earn income without the need to sell them at a higher price than their initial cost.
Common Types of Yield-Bearing Assets
There are several major categories of yield-bearing assets in DeFi:
* Lending tokens (interest-bearing tokens) — for instance, aTokens from Aave and cTokens from Compound. * Liquidity provider (LP) tokens — utilized on decentralized exchanges like Uniswap and SushiSwap. * Staked tokens (liquid staking derivatives) — for example, stETH from Lido, which represents assets staked. * Vault tokens (auto-compounding) — such as yvTokens from Yearn Finance.
How Yield-Bearing Assets Generate Yield?
The income from yield-bearing assets in DeFi depends on their function and the associated protocol. Main methods of generating income include:
* Interest from lending. * Trading fees from decentralized exchanges. * Block rewards from staking. * Reinvested earnings through vault strategies. These mechanisms allow users to earn over time without requiring active interference.
Yield-bearing assets in DeFi offer numerous opportunities for passive income generation. However, it is essential to understand the risks involved and make informed choices when using different platforms and protocols.
