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Ask CryptoVantage: Why Are Crypto Yields So Low Right Now?

2022 wasn’t easy peasy for crypto investors. With prices falling, Luna and Terra crashing, FTX filing for bankruptcy, and the world macroconditions still in shambles, we can easily say that last year was pretty close to a straight-up disaster for crypto.

And as if this is not painful enough, high crypto yields have all but collapsed while central banks continue to raise rates and push up interest rates across the globe — except in the world of crypto.

In today’s edition of Ask CryptoVantage, we will take a quick look at why some crypto yields are so low right now and whether the era of easy double-digit yields is over.

Where are the yields?

How Do You Generate Crypto Yields?

In decentralized finance (DeFi), as a crypto investor, you have the opportunity to generate and earn yields on your crypto coins by loaning out your crypto. In turn, your crypto coins are then used to provide loans to investors who are looking to borrow crypto. They then pay interest on their crypto loan, from which you receive a return in the form of yield.

DeFi uses the term yield, but it can mean the same as interest. You can compare yields with the interest you receive from the hard-earned cash that you deposited in your traditional financial bank’s savings account.

There are three major ways to generate yield:

  1. Staking
  2. Liquidity mining
  3. Lending your assets

Take a look at this article for more details on earning yield through staking, liquidity mining, and lending.

Are Double-Digit Yields a Thing of the Past?

Probably not, but for the foreseeable future they might be.

In the year before everything came crashing down, the world of decentralized finance was booming and the numbers were only trending up. Sometimes it was even possible to take advantage of something like 1000% APY for a short period of time.

High yields were definitely the main storyline of the 2020-2022 rally. Today, not so much.

Without a doubt, DeFi has been one of the areas in crypto that was hit the hardest in the recent downturn. With all the abysmal events that crypto investors had to endure in 2022, it should come as no surprise that the total value locked in DeFi protocols has shrunk massively since the overall crypto market hit its peak in November 2021, resulting in lower yields across the board.

Another interesting occurrence that could be a reason why we won’t see double-digit crypto yields return any time soon, is the fact that recently many crypto yields have fallen closer and even below what the US government pays to borrow for three months.

It is safe to assume that treasuries offering a similar payout for a whole lot less risk could deter hedge funds and family offices from investing in the wonderful, but risky, world of crypto.

Conclusion: Brighter Days Ahead

For the reasons mentioned above, crypto yields are much lower today than they were at the top of the bull market just over a year ago. Plenty of people think that the days of high yields have come to an end and that the system only worked when crypto prices were at record highs, and when it was virtually free to borrow cash.

However, it won’t be too long before crypto will bounce back and shatter all previous all-time highs. By then we can also expect the Fed to perform a pivot, pushing us once again up the road toward cheap cash. Once those events start to play out, the cryptoverse will be back to double-digit yields in no time. Most likely, anyways.

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About the Author

Joeri Cant

Joeri Cant is a Vancouver-based freelance writer and social media specialist who is passionate about all things blockchain and cryptocurrencies. When he is not immersed in the online crypto community, Joeri loves to explore the urban surroundings and the beautiful outdoors of British Columbia, Canada. He hikes, bikes, climbs, photographs, and shares it all with his family.

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