Finding On-Chain Certainty in Turbulence: Analyzing Three Types of Encryption Income Assets

As the world becomes increasingly uncertain, "certainty" has become a scarce asset. In an era where black swans and gray rhinos coexist, investors not only seek returns but also look for assets that can withstand volatility and possess structural support. The "encryption interest-bearing assets" in the on-chain financial system may represent this new form of certainty.

These crypto assets with fixed or floating returns have re-entered the investors' view, becoming a benchmark for them to seek stable returns in turbulent market conditions. However, in the crypto world, "interest" is no longer just the time value of capital; it is often the product of protocol design and market expectations working together. High returns may stem from real asset income, or they may conceal complex incentive mechanisms or subsidy behaviors. To find true "certainty" in the crypto market, investors need more than just interest rate tables; they require a deep disassembly of the underlying mechanisms.

Since the Federal Reserve began its interest rate hike cycle in 2022, the concept of "on-chain interest rates" has gradually entered the public eye. In the face of a real-world risk-free rate that has long remained at 4-5%, crypto investors have started to re-evaluate the sources of returns and risk structures of on-chain assets. A new narrative is quietly taking shape—crypto yield-bearing assets, which aim to construct financial products that "compete with the macro interest rate environment" on-chain.

However, the sources of income from interest-bearing assets are vastly different. From the cash flow generated by the protocol itself to the illusion of income relying on external incentives, and then to the integration and transplantation of off-chain interest rate systems, the different structures reflect distinctly different sustainability and risk pricing mechanisms. We can roughly categorize the interest-bearing assets of current decentralized applications into three types: exogenous income, endogenous income, and those linked to real-world assets.

Exogenous Returns: Subsidy-Driven Interest Illusion

The rise of exogenous returns is a reflection of the rapid growth logic in the early development of DeFi. In the absence of mature user demand and real cash flow, the market has instead resorted to "incentive illusions." Just like early ride-sharing platforms used subsidies to attract users, after Compound initiated "liquidity mining," multiple ecosystems subsequently launched huge token incentives, attempting to buy user attention and locked assets through "yield distribution."

However, these types of subsidies are essentially more like short-term operations where the capital market "pays" for growth metrics, rather than a sustainable revenue model. It once became the standard for the cold start of new protocols, whether it be Layer2, modular public chains, LSDfi, or SocialFi, the incentive logic is the same: relying on new capital inflows or token inflation, with a structure similar to a "Ponzi." The platform attracts users to deposit money with high yields, and then delays the realization through complex "unlocking rules." Those annualized returns in the hundreds or thousands are often just tokens "printed" out of thin air by the platform.

The Terra crash in 2022 was exactly like this: the ecosystem offered up to 20% annualized returns on UST stablecoin deposits through the Anchor protocol, attracting a large number of users. The yields were mainly reliant on external subsidies rather than real income from within the ecosystem.

Historically, once external incentives weaken, a large number of subsidized tokens will be sold off, damaging user confidence, which can lead to a death spiral decline in both TVL and token prices. According to data, after the DeFi Summer craze subsided in 2022, about 30% of DeFi projects experienced a market cap decline of over 90%, which is often related to excessive subsidies.

Investors looking for "stable cash flow" need to be more vigilant about whether there is a real value creation mechanism behind the returns. Using future inflation to promise today’s earnings is ultimately not a sustainable business model.

Endogenous Returns: Redistribution of Use Value

In simple terms, the protocol relies on the money earned from "doing real things" to allocate to users. It does not depend on issuing tokens to attract people, nor does it rely on subsidies or external blood transfusions, but rather generates income naturally through real business activities, such as loan interest, transaction fees, and even penalties in default liquidations. This income is somewhat similar to "dividends" in traditional finance, and is therefore also referred to as "quasi-dividend" encryption cash flow.

The biggest feature of this type of profit is its closed-loop nature and sustainability: the logic of making money is clear, and the structure is healthier. As long as the protocol is operational and there are users, there will be income coming in, without relying on market hot money or inflation incentives to maintain operation.

Therefore, understanding what drives its "blood production" allows us to more accurately assess the certainty of its returns. We can categorize this type of income into three prototypes:

The first category is "lending interest spread type". This is the most common and easiest to understand model in the early stages of DeFi. Users deposit funds into lending protocols, which match borrowers with lenders, and the protocol earns the interest spread. Its essence is similar to the traditional bank's "deposit and loan" model. The interest in the fund pool is paid by borrowers, and lenders receive a portion as returns. This type of mechanism has a transparent structure and operates efficiently, but its yield level is closely related to market sentiment. When overall risk appetite decreases or market liquidity contracts, interest rates and returns will also decline accordingly.

The second type is the "fee rebate type". This type of income mechanism is closer to the model of shareholders participating in profit dividends in traditional companies, or a specific partner receiving returns based on revenue sharing structure. Within this framework, the protocol returns a portion of the operational income (such as transaction fees) to participants who provide resource support, such as liquidity providers or token stakers.

Taking a certain decentralized exchange as an example, the protocol distributes a portion of the transaction fees generated by the exchange to users who provide liquidity, according to a certain proportion. In 2024, a certain protocol provided an annualized return of 5%-8% for stablecoin liquidity pools on the Ethereum mainnet, while stakers could earn annualized returns of over 10% during certain periods. These earnings come entirely from the protocol's endogenous economic activities, such as lending interest and transaction fees, and do not rely on external subsidies.

Compared to the "interest rate spread" mechanism, which is closer to a banking model, the "transaction fee rebate" yield highly depends on the market activity of the protocol itself. In other words, its return is directly linked to the business volume of the protocol: the more transactions, the higher the dividends, and when transactions decrease, income fluctuates accordingly. Therefore, its stability and ability to resist cyclical risks are often not as robust as those of lending models.

The third type is "protocol service type" income. This is the most structurally innovative type of endogenous income in encryption finance, and its logic is similar to the model in traditional business where infrastructure service providers offer critical services to clients and charge fees.

Taking a certain protocol as an example, through the "re-staking" mechanism, it provides security support for other systems and thus obtains returns. This type of income does not rely on lending interest or transaction fees, but comes from the market-based pricing of the protocol's own service capabilities. It reflects the market value of on-chain infrastructure as a "public good." This form of return is more diverse, potentially including token points, governance rights, and even expected future returns that have not yet been realized, demonstrating strong structural innovation and long-term nature.

In traditional industries, it can be compared to cloud service providers offering computing and security services to enterprises and charging fees, or financial infrastructure institutions providing trust guarantees for systems and generating revenue. Although these services do not directly participate in terminal transactions, they are an indispensable underlying support for the entire system.

On-chain Real Interest Rates: The Rise of RWA and Interest-bearing Stablecoins

Currently, more and more capital in the market is beginning to pursue a more stable and predictable return mechanism: on-chain assets anchored to real-world interest rates. The core of this logic lies in: connecting on-chain stablecoins or encryption assets to off-chain low-risk financial instruments, such as short-term government bonds, money market funds, or institutional credit, thereby obtaining "certainty interest rates from the traditional financial world" while maintaining the flexibility of encryption assets. Representative projects include a DAO's allocation to T-Bills, a project's launch of tokens linked to ETFs, and a tokenized money market fund from an asset management company, among others. These protocols attempt to "import the Federal Reserve's benchmark interest rate on-chain" as a foundational yield structure.

At the same time, interest-bearing stablecoins, as a derivative form of RWA, are also starting to come to the forefront. Unlike traditional stablecoins, these assets are not passively pegged to the US dollar, but actively incorporate off-chain yields into the tokens themselves. Typical examples include a certain project's USDM and another project's USDY, which accrue interest daily, with their revenue source being short-term government bonds. By investing in US Treasury bonds, USDY provides users with stable returns, with a yield close to 4%, higher than the 0.5% of traditional savings accounts.

They are trying to reshape the usage logic of "digital dollar" to make it more like an on-chain "interest account".

With the connectivity of RWA, RWA+PayFi is also a future scenario worth paying attention to: directly integrating stable yield assets into payment tools, breaking the binary division between "assets" and "liquidity". On one hand, users can enjoy interest-bearing returns while holding cryptocurrencies, and on the other hand, payment scenarios do not need to sacrifice capital efficiency. Products like the USDC automatic yield account launched on L2 by a certain exchange not only enhance the attractiveness of cryptocurrencies in actual transactions but also open up new use cases for stablecoins—transforming from "dollars in the account" to "capital in active circulation."

Three Indicators for Finding Sustainable Income Assets

The logical evolution of "encryption 'yield-bearing assets'" actually reflects the process of the market gradually returning to rationality and redefining "sustainable returns". From the initial high inflation incentives and governance token subsidies to the increasing emphasis by many protocols on their own self-sustainability and even connecting to off-chain yield curves, the structural design is moving out of the rough stage of "involution-style capital extraction" towards more transparent and refined risk pricing. Especially in the current context of high macro interest rates, if the encryption system wants to participate in global capital competition, it must establish a stronger "reasonableness of returns" and "liquidity matching logic". For investors seeking stable returns, the following three indicators can effectively assess the sustainability of yield-bearing assets:

1. Is the source of income "endogenous" and sustainable? Truly competitive income-generating assets should derive their returns from the protocol's own business, such as lending interest, transaction fees, etc. If returns mainly rely on short-term subsidies and incentives, it resembles "passing the buck": as long as the subsidies are present, the returns are there; once the subsidies stop, the funds leave. Such short-term "subsidy" actions, if they turn into long-term incentives, will exhaust project funds and can easily lead to a death spiral of declining TVL and token prices.

2. Is the structure transparent? Trust on-chain comes from openness and transparency. When investors leave the familiar investment environment of traditional finance, which has intermediaries like banks as endorsements, how should they judge? Is the flow of funds on-chain clear? Is the interest distribution verifiable? Is there a risk of centralized custody? If these questions are not clarified, it will all belong to black box operations, exposing the system's vulnerabilities. A financial product with a clear structure and an on-chain public, traceable mechanism is the true underlying guarantee.

3. Are the returns worth the opportunity cost in reality? In the context of the Federal Reserve maintaining high interest rates, if the returns of on-chain products are lower than Treasury bond yields, it will undoubtedly be difficult to attract rational funds. If on-chain returns can be anchored to real benchmarks like T-Bills, it would not only be more stable but could also become an "interest rate reference" on-chain.

However, even "yield-bearing assets" are never truly risk-free assets. Their