Crypto Yields-Deep Dive on DeFi

Overview: The Decentralized Finance (DeFi) space has been all the craze this year, with an estimated value of over $11B locked in the DeFi lending market alone.1 It’s likely that you’ve seen new DeFi platforms with impressive annual percentage yields (APY) advertised for different cryptocurrencies listed on these platforms. Depositing your crypto for a high return can be an appealing offer especially in today’s world of negative interest rates and fiat debasement. The generous rates DeFi offers relative to traditional yield-bearing instruments is enticing, but we believe there are significant implied and realized risk premia worth considering. While we intend to outline the risks specific to decentralized lending platforms in this note, we hope it serves as a useful guide for navigating DeFi as the broader ecosystem continues to innovate and disrupt the existing financial industry.