Main Takeaways
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Ethena, Pendle, and Radiant Capital, joins Binance Labs in the first episode of their new AMA series, The BUIDLer Blueprint, to explore the growing importance of Real Yield.
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Real Yield is more than just a buzzword–business models that focus on genuine value creation and stable cash flows are likely to thrive over the long term, regardless of market conditions.
In the inaugural episode of Binance Labs’ new AMA series, The BUIDLer Blueprint, we delved into the concept of “Real Yield”. The series aims to bring together portfolio founders, industry experts, and thought leaders to discuss critical topics and share valuable insights. In this episode, we were joined by Guy Young, Founder of Ethena; TN, Co-Founder of Pendle; and Isaac Prada, Director of Communications & Project Management at Radiant Capital, to explore the significance of real yield in today’s crypto market.
Real Yield – buzzword or big deal?
The discussion kicked off with a fundamental question: Is real yield just a buzzword, or is it truly a big deal? The panelists unanimously agreed that real yield is not only important but is also becoming increasingly critical in the evolving crypto landscape. There is a clear shift in the industry towards real yield and sustainable business models. As the market matures, projects that prioritize genuine value creation and stable cash flows are likely to thrive.
Pendle’s TN explained that the shift towards real yield is driven by a growing awareness within the crypto community. It’s common for projects to launch with a lot of hype but very little substance. Without real value accrual, tokens often go through a hype cycle before prices eventually plummet, leaving investors to face harsh realities. TN emphasized that real yield can help establish a price floor for tokens, making projects more investable over the long term.
Ethena’s Guy echoed this sentiment by reflecting on the lessons learned during the “DeFi Summer.” He pointed out that much of the on-chain activity back then involved moving money between projects without generating real value, which led to inflated but unsustainable valuations.
Today, the focus is on business models that generate real cash flow. Ethena’s approach involves combining various sources of sustainable cash flow, such as Ethereum staking and leverage in centralized futures markets, to create a product that offers real yield to users. This strategy not only adds a layer of protection for the community but also builds a solid foundation for long-term growth. In fact, during Ethena’s initial months, the project generated significant cash flow, which was strategically placed in a reserve fund to safeguard against market downturns.
Isaac from Radiant Capital discussed the pitfalls of relying on unsustainable yields to attract TVL (Total Value Locked). In 2022 and 2023, many protocols launched with their own native tokens and offered high yields to quickly attract TVL. However, this often resulted in “mercenary” TVL that vanished just as quickly, leaving the protocols vulnerable.
He emphasized that real yield is crucial for two reasons. From a business perspective, it helps build a robust model that can eventually break even, enabling the protocol to be self-sustaining without relying on grants or unsustainable incentives. From a user perspective, real yields in blue-chip assets like Bitcoin, ETH, and stablecoins are more valuable than token rewards.
Radiant Capital chose to focus on sustainable yields and sticky TVL by offering rewards in blue-chip assets like Bitcoin, ETH, and stablecoins. This approach not only maximizes the real yield users receive but also ensures that the protocol remains robust and self-sustaining in the long run.
Navigating market conditions: Stress Testing and Risk Management
In the second part of our discussion, we delved into the current market conditions, particularly focusing on the recent market drawdown and its impact on stress testing and risk management within DeFi. This cycle has presented unique challenges, and the panelists shared their insights on navigating these turbulent conditions.
Guy found it promising to see how DeFi performed in the recent weeks. Historically, significant market drawdowns often led to major disruptions, but this time, DeFi held up better against the downturns.
He believes that being proactive, rather than reactive, is crucial in crypto, where such events are frequent and unpredictable. At Ethena, they chose not to chase yields during the bull market. Instead, they focused on building a product designed to withstand the test of time, prioritizing long-term stability over always optimizing for the highest returns. This approach has enabled them to sleep better at night.
Isaac discussed Radiant Capital’s approach during the bearish market of 2022. Despite seeing significant inflows into high-yield protocols, Radiant Capital opted to concentrate on blue-chip markets—Bitcoin, ETH, and stablecoins—while avoiding riskier long-tail assets. As the market shifted towards a bull phase, Radiant Capital adapted to changing user demands and developed isolated markets for both risk-averse users and those interested in emerging trends like RWAs, LRT tokens, and AI tokens.
With that said, Radiant Capital remained selective about the assets included in their offerings, evaluating quality based on price stability, decentralization, and depth of liquidity rather than just the latest trends. Ultimately, their goal is to offer robust options even for high-risk, high-reward scenarios, ensuring a balanced approach to both innovation and risk management.
Indicators of sustainability beyond yield
When evaluating the sustainability of a protocol, the discussion also turned to indicators beyond yield and revenue.
Isaac highlighted that while financial KPIs are crucial, community engagement and clear use cases are also essential. He stressed that protocols should offer straightforward, understandable use cases that clearly explain how yield is generated and the associated risks. Higher yields often come with higher risks, and transparency helps users align their investments with their risk profiles.
He also pointed out the importance of community feedback. At Radiant Capital, lessons learned from their community have been instrumental in refining their approach, particularly from version 1 to version 2. Building and maintaining a strong community can provide valuable insights into user needs and priorities, which supports the development of a robust business model.
Guy explained that his perspective evolved over time. Initially, Ethena’s focus was heavily on yield, but they learned that trust and product security were more critical to users. Ethena’s approach shifted to emphasize stability and security, aligning with community feedback.
He emphasized the need to consider the margin a protocol retains from the yield it generates. For instance, in the crypto space, products like Liquid Staking Tokens (LSTs) and Real World Assets (RWAs) are common yield generators. However, many protocols struggle to capture a significant portion of these yields for themselves.
For example, LSTs might generate a 3% yield, but after paying validators and covering protocol costs, only a small fraction, around 10%, remains for the protocol itself. Similarly, RWAs, such as on-chain T-bills with a 5% yield, often have the product absorbing 10-20% of that yield.
The key takeaway is that it’s not just about the yield your product offers but whether it delivers real value. A protocol must offer something distinctive or innovative to capture meaningful returns. It should provide a unique advantage or ‘alpha’ that sets it apart and justifies its value proposition.
TN agreed that while real yield is a significant indicator of sustainability, it should not be the sole factor. He noted that DeFi protocols often see revenue fluctuations based on market conditions. For instance, a DEX may experience higher APYs during volatile markets, and platforms like Pendle may see varying traction based on market events. Evaluating sustainability requires a holistic view, considering both current performance and long-term viability.
He also added that community alignment is crucial. While attractive APYs and APRs can draw interest, a protocol must also have a clear vision or mission that resonates with its community. A well-articulated long-term roadmap—covering at least three to five years—can significantly enhance a protocol’s ability to attract and retain members from the DeFi community.
Conclusion
As we navigate through the evolving landscape of crypto, the emphasis on real yield becomes increasingly crucial. The insights shared by our panelists underscore a significant shift towards sustainable practices and community-driven development. Ethena, Pendle, and Radiant Capital, exemplify how protocols can thrive by focusing on real value, transparent yield generation, and long-term stability.
Catch the full conversation on X Spaces at https://x.com/i/spaces/1jMJgBjwpzYGL
Stay tuned for more episodes of The BUIDLer Blueprint as we continue to explore the innovations and strategies that are shaping the future of the crypto space.