Name the yield source
Start by identifying what actually creates the return.
Common sources include:
- staking rewards
- lending interest
- trading fees
- liquidity mining incentives
- token emissions
- restaking rewards
- promotional exchange campaigns
The risk is different in each case.
Staking is not the same as lending
Staking usually helps secure a network or participate in consensus.
Lending usually means another party can use the asset, with collateral or counterparty assumptions.
Liquidity pools expose users to price movement between paired assets.
Do not compare all of these by APY alone.
Check lockups and exits
Ask:
- Can I withdraw anytime?
- Is there an unbonding period?
- Are rewards paid in the same asset or a different token?
- What happens during network congestion?
- Are there withdrawal fees?
- Can the platform pause withdrawals?
Liquidity matters most when everyone else wants it too.
Review smart-contract and counterparty risk
Onchain yield can carry smart-contract risk.
Custodial yield can carry platform risk.
Hybrid products can carry both.
Look for clear documentation, security reviews, incident history, withdrawal behavior, and whether the product depends on a single operator.
Understand token emissions
High APY often comes from new token issuance.
That can be fine for bootstrapping, but it may pressure token price if demand does not keep up with emissions.
Ask whether the yield is sustainable without constant new buyers.
Red flags
Be careful with:
- guaranteed returns
- unclear counterparties
- no withdrawal history
- pressure to deposit quickly
- APY that is much higher than comparable products
- rewards paid in a thinly traded token
- no explanation of where yield comes from
The best yield decision is sometimes no yield.