The high yield (APY) offered in the world of decentralised finance (DeFi) certainly intrigues many investors. However, if you've ever come across 100 per cent or even 1,000 per cent returns, you may have rightly sensed a catch.
So how does it work?The yield (APY) is conceptually similar to dividends in the stock market. A company's dividend that is not backed by matching returns will clearly be unsustainable. Consider a simplified example:
Project X distributed 10,000 of its $10 tokens in one month, bringing the total issue value to $100,000. During the same period, the project's income was $50,000. As a result, we have a deficit of $50,000. As we can see, if the project's APY is mainly supported by token issuance rather than being funded by its revenue, there is no long-term expectation of high APY.
On the other hand, issue can be successfully used to attract users. It is at the initial stage of project development that there is an opportunity to obtain high APY, after which, as a rule, these projects gradually reduce issuance and switch to more sustainable models.
