The rising 10-year US Treasury yield, which rose four basis points to 3.506% on Monday, is now higher than many yields that can be obtained via DeFi protocols.
The surge in Treasury yields hit Monday as Federal Reserve Chair Jerome Powell hinted rate hikes may end soon. The 10-year Treasury yield is an indicator of investor confidence in the US market.
At 3.506%, the yield over a decade is now higher than many high-yield DeFi opportunities.
In DeFi, investors often generate income through yield farming, which is the process of earning rewards by providing liquidity to token pairs or trading pools.
Decentralized protocols such as Aave, Curve, and Compound are commonly used to facilitate yield farming.
Aave’s annualized return percentage (APY) for stablecoins like USDC, USDT, and DAI currently stands at 2.57%, 2.43%, and 2.71%, respectively.
Compound’s APR for these tokens is 1.93%, 2.50%, and 1.66%.
Curve’s 3Pool base APY is 0.07%, with 0.52% – 1.32% in token APY rewards.
Fluctuating DeFi yields could outperform the Fed rate
While such major DeFi players may not be offering higher yields than Treasury right now, DeFi yields vary across the board.
Liquid staking derivatives and service providers on Ethereum — like Lido, Rocket Pool, and Frax Finance — offer enticing alternatives to US-backed bonds.
Staking involves locking tokens in order to participate in the network security of a proof-of-stake blockchain.
Liquid staking derivatives allow token holders to stake their tokens that would otherwise go unused, and these protocols have since become a popular investment model.
Lido, one of the largest staking protocols with over 6.6 million Ether (ETH) stubbed on its platform, offers an annual percentage rate (APR) of 6.0% to clients who lock their ETH on its platform.
Likewise, Rocket Pool offers around 5.17% APR in ETH for clients interested in participating in staking – and around 6.98% APR in ETH and Rocket Pool rewards for those interested in staking a node to operate and engage on its platform.
Frax Finance in particular offers attractive yields. Its VST/FRAX pool offers stakers a base APR of 6%, but its base APR could be over 20%.
Ethereum is not the only network offering attractive staking solutions. Plenty of liquid betting options are also available through Cosmos and Solana.
As with any other investment, there are risks associated with its use.
The process enabled by crypto yield staking can be highly volatile and underlying token prices can change rapidly due to variable market conditions.
Validator nodes may also fail, and some tokens may require lockout periods.
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