Yield: the five sources and where each breaks

1. Trading fees

LP fees and market-maker spreads: real revenue from real flow. Breaks when volume dries up or the pair drifts (see impermanent loss).

2. Lending interest

Borrowers pay you for capital. Breaks when utilization collapses or collateral backing the loans fails.

3. Staking and validation rewards

Networks pay operators for security, in native tokens. Breaks slowly — through dilution and lockups that trap you during drawdowns — rather than suddenly.

4. Token incentives

Protocols print their own token to rent liquidity. This is a subsidy, not a business: it ends, and the token usually falls as farmers sell. Farm incentives with an exit date, never as "passive income".

5. Leveraged and looped strategies

Borrowing against deposits recursively multiplies both rate spreads and liquidation risk. Loops turn small depegs into total losses. If you cannot diagram every step that fails, you are the exit liquidity.

The one question

For any yield, ask: who pays, and why would they keep paying? If the answer is "new depositors" or "token printing", you are looking at distribution wearing a yield costume.

Risk note: cryptocurrency trading, leveraged perpetual futures, and automated algorithmic strategies carry significant risk of rapid and total financial loss. Never risk funds you cannot afford to lose completely. Nothing in this lesson is investment advice, a recommendation, or an offer to sell any product.