Solana DeFi yield: what matters beyond the headline APY?

[WealthVille]

When comparing Solana yield opportunities, I would start by asking where the return actually comes from. Lending interest, staking rewards and token-emission incentives are different things; an APY that counts incentives at today's token price can change quickly if rewards are reduced or the token price falls. Compare the same time period and denomination, and estimate net results after protocol or validator fees, swap spread, transaction costs and the effect of compounding. A quoted APY is not a promise of future returns.

The risk side matters just as much: smart-contract bugs or upgrade/admin-key risk, oracle and liquidation mechanics in lending, liquidity and withdrawal limits, concentration in one pool or reward token, and impermanent loss for LPs. Audits and high TVL can be useful checks, but neither eliminates risk. Read the withdrawal and emergency-pause terms, verify links independently, and never share a seed phrase; if you cannot explain how a pool generates yield, sitting it out is reasonable.

What do you use to compare realized net yield and risk across Solana pools, and over what time window? Airdrop speculation can be a starting point for research, but it is not itself a yield thesis. For readers looking for broader background on Solana DeFi and yield, this is one learning resource: https://wealthville.net/learn (disclosure: I’m affiliated with the linked resource).

[hugeblack]

I do not think that staking yields a high return. For instance, if someone stakes $10,000 SOL for one year, the total return would be $500 which averages out to $42 per month. When compared to the capital involved, it is clear that any trader could easily generate $42 per month through trading, assuming a starting capital of $10,000.

[asriloni]

I admit, the risk for farming yield is high, but i'm always looking for a short duration fixed yied to earn rather than using native coin that offered lower risk + same risk as using yield bearing. I'd rather go for the yield bearing asset / principal token asset which is offering greater fixed yield + airdrop at the same time. So let's assume the APY can be doubled or even tripled.

I do not think that staking yields a high return. For instance, if someone stakes $10,000 SOL for one year, the total return would be $500 which averages out to $42 per month. When compared to the capital involved, it is clear that any trader could easily generate $42 per month through trading, assuming a starting capital of $10,000.

If you're staking an stable such as USDC/USDT or native coin like SOL. It's obvious the return is so small, and not worth with the risk. However, staking can yield high return when we're using principal token as well as providing liquidity for the leverage token.

We got yield + airdrop, which is making the yield calculation becomes far greater than what we received when we staked. I'm currently earning 12% using principal token + airdrop, so i earn more than 30% APY or even more.

Beside that using principal token is also less risky rather than trading.

[ultrloa]

I do not think that staking yields a high return. For instance, if someone stakes $10,000 SOL for one year, the total return would be $500 which averages out to $42 per month. When compared to the capital involved, it is clear that any trader could easily generate $42 per month through trading, assuming a starting capital of $10,000.

No doubt for them to generate much bigger gains on trading, but we cannot also take out the possibilities that they also had chance to lose and get broke to. Market is unpredictable and that actually make trading profit inconsistent.

Also staking might not really give the huge profit that we want, or even make us rich. But this is still decent way to earn, without putting to much effort.

5% each year still decent gain, especially for people choose to hold their crypto.

[Conqueror777]

I do not think that staking yields a high return. For instance, if someone stakes $10,000 SOL for one year, the total return would be $500 which averages out to $42 per month. When compared to the capital involved, it is clear that any trader could easily generate $42 per month through trading, assuming a starting capital of $10,000.

5% is a fine percentage if your capital is not at risk. I wouldn't use sol though, I would use stablecoins in order to get that 5% because sol is volatile.

[batang_bitcoin]

I would start by asking where the return actually comes from. Lending interest, staking rewards and token-emission incentives are different things; an APY that counts incentives at today's token price can change quickly if rewards are reduced or the token price falls. Compare the same time period and denomination, and estimate net results after protocol or validator fees, swap spread, transaction costs and the effect of compounding. A quoted APY is not a promise of future returns.

Those sources you've mentioned contributes to the return that's given to the users who will stake. Commission comes from various sources that includes the fees and from the newly minted sol which results to inflation and when you help the network to be more secured, you get rewarded with that through delegating it. It's true that the promised apy might change over the period of time because it changes and there are factors like supply and demand and inflation to be considered. Stakers might think that it's an easy passive income but, no it's also risky. Users also need to classify which one they like to do, the native or liquid one.

5% is a fine percentage if your capital is not at risk. I wouldn't use sol though, I would use stablecoins in order to get that 5% because sol is volatile.

The return might be the same and as you calculate the risk, doing it with sol gives impermanent loss compared to using stable coins that has stable value and more accurate apy and returns.

[nelson4lov]

I do not think that staking yields a high return. For instance, if someone stakes $10,000 SOL for one year, the total return would be $500 which averages out to $42 per month. When compared to the capital involved, it is clear that any trader could easily generate $42 per month through trading, assuming a starting capital of $10,000.

+1

I like to think that people with deep pockets like $10m+ will enjoy things like this since they can get $500k per annum and slightly higher if compounded over the course of the year. However, given the state of crypto defi, I doubt that the risk is worth the APY. DeFi hacks are the highest across the board and solana dapps are not an exception to it.

If hacks doesn't drain the funds, impermanent loss might.

[avp2306]

I do not think that staking yields a high return. For instance, if someone stakes $10,000 SOL for one year, the total return would be $500 which averages out to $42 per month. When compared to the capital involved, it is clear that any trader could easily generate $42 per month through trading, assuming a starting capital of $10,000.

+1

I like to think that people with deep pockets like $10m+ will enjoy things like this since they can get $500k per annum and slightly higher if compounded over the course of the year. However, given the state of crypto defi, I doubt that the risk is worth the APY. DeFi hacks are the highest across the board and solana dapps are not an exception to it.

If hacks doesn't drain the funds, impermanent loss might.

This is actually the huge benefits you can get, if you can able to spend such big amount of money.

But if If I owned such big wealth, I will not think about putting it on Defi, but rather I will split to on this investments.

REITS
GOLD
BITCOIN
and other investment offers which bank could offer.

Since this is much safer, rather than relying on 5% per annum what Yield platforms could give.

[TastyChillySauce00]

A quoted APY is not a promise of future returns.

From what I know in most DeFis, the quoted APY is historical performance, it tracks how much return from yield has been distributed so far against the capital, averaged out. It's just an indicator for what the users might receive in the future based on past events. In some case, quoted APY is simply pool rewards divided by pool participants and it's usually volatile. Not a promise of future return, but you could make estimation. I'm sure if it was based on historical performance the result usually wouldn't be too far off.

Regarding comparing net yield and the risk, it's pretty hard to say. Every project have their own risk. You're going to need to look into the risk involved with how they generated the yield such as risk of losing if the yield is coming from arbitrage or market making. For LP, you will need to look into each token pair, etc.

I do not think that staking yields a high return. For instance, if someone stakes $10,000 SOL for one year, the total return would be $500 which averages out to $42 per month. When compared to the capital involved, it is clear that any trader could easily generate $42 per month through trading, assuming a starting capital of $10,000.

Also +1 on this, staking anything below $50k is usually waste of time unless that person is staking while also expecting capital gain from price appreciation. If I'm holding Solana after I'm buying it at the bottom and expect it to rise within 2-3 months, I'd stake it to earn yield while waiting. This could turn staking below $50k from just a waste of time to a good passive income.

[hugeblack]

We got yield + airdrop, which is making the yield calculation becomes far greater than what we received when we staked. I'm currently earning 12% using principal token + airdrop, so i earn more than 30% APY or even more.

Beside that using principal token is also less risky rather than trading.

This might look good, but will the price of these yield principal tokens remain stable enough to generate a monthly return? On paper, it seems like a successful strategy, but in practice, these tokens could undergo a sharp correction (dropping by more than 30%) within a matter of hours.

[nelson4lov]

+1

I like to think that people with deep pockets like $10m+ will enjoy things like this since they can get $500k per annum and slightly higher if compounded over the course of the year. However, given the state of crypto defi, I doubt that the risk is worth the APY. DeFi hacks are the highest across the board and solana dapps are not an exception to it.

If hacks doesn't drain the funds, impermanent loss might.

This is actually the huge benefits you can get, if you can able to spend such big amount of money.

But if If I owned such big wealth, I will not think about putting it on Defi, but rather I will split to on this investments.

REITS
GOLD
BITCOIN
and other investment offers which bank could offer.

Since this is much safer, rather than relying on 5% per annum what Yield platforms could give.

Well, it's each to their own at the end of the day. I've personally seen people who got rich and simply took out almost everything and put into an investment account like MMF, treasury bills, etc and they just go on to live off the interest payments. Some people are like that and those passive incomes are okay for their livelihood. For the rest of us degens, Bitcoin and Gold and whatever shining altcoin is available will do just fine.

[avp2306]

We got yield + airdrop, which is making the yield calculation becomes far greater than what we received when we staked. I'm currently earning 12% using principal token + airdrop, so i earn more than 30% APY or even more.

Beside that using principal token is also less risky rather than trading.

This might look good, but will the price of these yield principal tokens remain stable enough to generate a monthly return? On paper, it seems like a successful strategy, but in practice, these tokens could undergo a sharp correction (dropping by more than 30%) within a matter of hours.

Most of those things only good at first.

But as months or years pass, we could see their issues. Those matters you have mentioned exist and some staking platform go away, because the project owner scam their investors.

That's why that staking never became attractive to me, since scamming incident and sharp decline on the price of tokens is one big concern. What people need to look at.

This is actually the huge benefits you can get, if you can able to spend such big amount of money.

But if If I owned such big wealth, I will not think about putting it on Defi, but rather I will split to on this investments.

REITS
GOLD
BITCOIN
and other investment offers which bank could offer.

Since this is much safer, rather than relying on 5% per annum what Yield platforms could give.

Well, it's each to their own at the end of the day. I've personally seen people who got rich and simply took out almost everything and put into an investment account like MMF, treasury bills, etc and they just go on to live off the interest payments. Some people are like that and those passive incomes are okay for their livelihood. For the rest of us degens, Bitcoin and Gold and whatever shining altcoin is available will do just fine.

Well yeah, everyone have their own preferences. But its good to look at the suggestions given by people to see if their suggestion is truly worth to try or not. There's lots of things to learn from the opinion of people here. And its really up to anyone on what matches on their preferences. But usually since we are in crypto, many would choose that option.

[nelson4lov]

Well, it's each to their own at the end of the day. I've personally seen people who got rich and simply took out almost everything and put into an investment account like MMF, treasury bills, etc and they just go on to live off the interest payments. Some people are like that and those passive incomes are okay for their livelihood. For the rest of us degens, Bitcoin and Gold and whatever shining altcoin is available will do just fine.

Well yeah, everyone have their own preferences. But its good to look at the suggestions given by people to see if their suggestion is truly worth to try or not. There's lots of things to learn from the opinion of people here. And its really up to anyone on what matches on their preferences. But usually since we are in crypto, many would choose that option.

When it comes to investment, crypto is the first option that always comes to my mind and Bitcoin is at the top of that list. However, I won't mind a yield bearing or passive income opportunity especially if it means that I can invest in bitcoin almost risk free with the interest payments from said investment.

Bitcoin and crypto is freedom over our finances, if you can do that almost risk free, then you've won it all. But instead of going to banks, I'd rather do it in crypto but defi at the current state is just not worth it especially with this level of security. Even binance go hacked for $6B+

[atookz]

doing it with sol gives impermanent loss compared to using stable coins

Impermanent loss doesn’t apply to SOL staking, unlike providing liquidity to a pool. The risk with staking is SOL’s price going against your dollar value. There are also some risks to stablecoins (depeg, issuer).

Even binance go hacked for $6B+

Yes, but this is known as "custody risk," putting your keys in a company's hands. DeFi risk is that you have to trust the code. There are various failure modes, so it’s important to know which ones you’re taking on.
Regarding OP's question, I separate the base yield (fees, interest) from the reward emissions may be gone or become worthless. I also check the result in terms of the token. The 5% staking reward is paid in SOL, so if SOL falls 30%, the dollar result will be negative. And I only trust a yield that has held up for at least a month or two, not the headline number.

[batang_bitcoin]

doing it with sol gives impermanent loss compared to using stable coins

Impermanent loss doesn’t apply to SOL staking, unlike providing liquidity to a pool. The risk with staking is SOL’s price going against your dollar value.

Thanks for correcting me, it only becomes impermanent if someone puts it on an LP and not with staking. I was able to mix that with staking but the actual possible loss is what you have explained against dollar price when the price goes down and you've bought it quite higher.

There are also some risks to stablecoins (depeg, issuer).

That's one of its risk but it only happens to few that are not big but, it can also happen to the big stable coins.

[nelson4lov]

Even binance go hacked for $6B+

Yes, but this is known as "custody risk," putting your keys in a company's hands. DeFi risk is that you have to trust the code. There are various failure modes, so it’s important to know which ones you’re taking on.

Yup, custody risk is part of the game whether you invest the funds with a bank or with a DeFi protocol, those risks still exist for both. I made my reply with a hypothetical stance where there are no counterparty or custody risks. I know we don't live in an ideal world but if we did, and code security was not an issue, it might be more rewarding to just use interests from an investment that pays out yield and invest those returns into bitcoin or crypto.

Just my 2 cents.

[asriloni]

We got yield + airdrop, which is making the yield calculation becomes far greater than what we received when we staked. I'm currently earning 12% using principal token + airdrop, so i earn more than 30% APY or even more.

Beside that using principal token is also less risky rather than trading.

This might look good, but will the price of these yield principal tokens remain stable enough to generate a monthly return? On paper, it seems like a successful strategy, but in practice, these tokens could undergo a sharp correction (dropping by more than 30%) within a matter of hours.

The stability of principal token is depending on leverage token demand, but when you can get principal token when there are more people buy leverage token. You will be getting higher yield.  The principal token get the yield from people who bought the leverage token called YT. The return is totally depending how big your capital. The bigger your capital, the more monthly return.

Let's say i buy PT when it offers me 12%, then i will always get 12% ROI until the maturity, which often last for 3 -  6 months, but we can also exit anytime.

[atookz]

That's one of its risk but it only happens to few that are not big but, it can also happen to the big stable coins.

Yeah, even USDC dipped to $0.87 over a weekend back in March 2023 when Circle reported $3.3B of the reserves in SVB. It got back to the peg once the deposits were guaranteed but if you had it in a DeFi pool that weekend, you wouldn't have had a great time. Oh, and no worries about the IL mix-up, I understand why it might be confusing, LPs typically contain a volatile token.

I made my reply with a hypothetical stance where there are no counterparty or custody risks. I know we don't live in an ideal world but if we did, and code security was not an issue, it might be more rewarding to just use interests from an investment that pays out yield and invest those returns into bitcoin or crypto.

Fair as a thought-experiment it is good. My only issue is that if there was zero counterparty risk, zero custody risk and zero code risk, it would simply be paying the risk-free rate which would not even look close to what DeFi offers. The more you're being paid, the more risk you're taking, and not a risk that's necessarily apparent on the surface. This also includes SOL staking 5% which is paid in SOL, meaning you continue to have SOL price risk until you convert it to BTC.

[blek5000]

I think the fairest comparison is realized return in the same unit over the same window, after fees and any reward-token or SOL price move—not the quoted APY. A 5% SOL reward still leaves you exposed to SOL’s price, while stablecoins can depeg and lending pools add contract or liquidation risk, so I wouldn’t call either risk-free. For a principal token, I’d check the redemption and maturity terms and secondary-market depth too; being able to exit early doesn’t guarantee you’ll get close to face value.

[pawanjain]

I do not think that staking yields a high return. For instance, if someone stakes $10,000 SOL for one year, the total return would be $500 which averages out to $42 per month. When compared to the capital involved, it is clear that any trader could easily generate $42 per month through trading, assuming a starting capital of $10,000.

It's all about the ROI. The APY for staking is 5% for SOL which is obviously on the lower side when compared to other investment methods.
A fixed deposit in bank in my country gives around 7% and fixed bond interest is around 10%.
But then we also have to look at diversification perspective and hence Staking is not that of a bad option after all.
Besides that, holding on to staked SOL adds a benefit of the price increasing thus getting more in rewards when exchanged to fiat at a later point of time.