DeFi Yields: Where Does the Money Really Come From?

A Closer Look at the High-Yield Promises and Why They Collapsed in Spring
I still remember the time when DeFi yields sounded like the new El Dorado. Double-digit annual returns, casual marketing slogans on crypto portals – it lured many of us in. But then came the crash in spring 2022. Suddenly, not only did the prices plunge, but entire yield strategies in decentralized finance (DeFi) crumbled like dominoes. Billions in value vanished. Not due to hackers, as one might think, but because many of these “safe” yield promises simply couldn’t deliver under stress. David Plisek of Solstice Finance put it bluntly at the time: it was the sudden failure of the strategies themselves—not malicious intent, but sheer overreach.
In April alone, the DeFi sector lost $13 billion. But where did the money go? The simple answer: it was never really there. Or at least, not as stable as it seemed. A high APY (Annual Percentage Yield) is easy to calculate—but whether the strategy can hold up when the market takes a real hit is a whole different question.
Four Questions to Ask Before Any DeFi Investment
David Plisek hit the nail on the head: before you put your money into a DeFi yield strategy, you should examine these four things—very carefully.
1. Where Does the Yield Actually Come From?
Not all yields are honestly earned. Some come from real sources like trading fees or staking rewards. Others? They’re based on risky leverage or even Ponzi schemes, where new investors fund old returns. Last year, many projects relied on “yield farming” that collapsed at the slightest market move. And then there’s the problem: if the return sounds too good to be true, it probably is.
2. How Is Risk Measured—and Communicated?
Most DeFi protocols tout “APY,” but don’t explain how they achieve it. Especially treacherous are “stablecoin yields,” often driven b



y excessive leverage or risky lending. When markets panic or liquidity dries up, such structures quickly stand on shaky ground.
3. Who’s Actually Behind the Project?
Anonymity is common in DeFi—but not always wise. If you don’t know who built the protocol, how can you be sure they won’t vanish tomorrow? Transparency is key. Without clear accountability and traceable governance, things get dangerous fast.
4. What Happens If the Market Crashes?
The best strategy is useless if it collapses at the first major correction. Plisek stresses: ask yourself whether the strategy holds up under stress. Are there tests or simulations showing it remains stable? If not, stay away.
The Great Illusion: “Safe” DeFi Yields
A particularly sneaky trend in recent years was “yield stacking.” Multiple yield-generating mechanisms were stacked on top of one another to chase even higher returns. Stablecoins deposited in one protocol, tokens used as collateral for loans in another, and so on. The whole construct was like a house of cards—as long as the wind didn’t blow too hard.
But then interest rates rose and crypto prices fell. Suddenly, entire systems collapsed—Terra (LUNA) and its UST stablecoin were hit especially hard. The Terra collapse triggered a massive domino effect. Investors didn’t just lose money; they lost trust in the entire ecosystem.
The Future: Realism Over Hype
The events of 2022 showed: high yield promises aren’t a free pass. Today, investing in DeFi requires even more scrutiny than ever. Regulation might one day protect investors—but until then, the responsibility lies with us.
DeFi has the potential to transform finance. But as with any revolution, there are dark sides. Only by learning to understand the risks—and not being blinded by shiny promises—can we avoid turning the “next big yield opportunity” into the next big loss.