Exploration of On-Chain Deterministic Assets: Analysis of Three Types of Encryption Yield Assets

In today's world of uncertainty, "certainty" has become a scarce asset. Investors are not only seeking returns but also looking for assets that can withstand volatility and have structural support. The "encryption yield-bearing assets" in the on-chain financial system may represent a new form of this kind of certainty.

These crypto assets with fixed or floating yields have drawn the attention of investors, becoming a reliance for them in seeking robust returns amid turbulent market conditions. However, in the crypto world, "interest" reflects not only the time value of capital but also the result of the interplay between protocol design and market expectations. High yields may stem from real asset income or may conceal complex incentive mechanisms. To find true "certainty" in the crypto market, investors need to gain a deep understanding of the underlying mechanisms.

Since the Federal Reserve began raising interest rates in 2022, the concept of "on-chain interest rates" has gradually become popular. In the face of a 4-5% risk-free interest rate in the real world, encryption investors have started to reassess the sources of returns and risk structures of on-chain assets. A new narrative has quietly formed—encryption yield-bearing assets, attempting to build financial products on-chain that compete with the macro interest rate environment.

The sources of income for income-generating assets are diverse. From the cash flows of the protocol itself to the illusion of returns relying on external incentives, and the integration of off-chain interest rate systems, different structures reflect varying sustainability and risk pricing mechanisms. Currently, income-generating assets in decentralized applications can be broadly classified into three categories: exogenous returns, endogenous returns, and real-world asset (RWA) linkage.

Exogenous Returns: Subsidy-Driven Interest Illusion

The rise of external yields reflects the logic of the rapid growth of DeFi in its early stages. In the absence of mature user demand and real cash flow, the market has replaced it with "incentive illusions." Many ecosystems have launched massive token incentives in an attempt to attract user attention and lock up assets through "yield farming."

However, these 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 configuration for the cold start of new protocols, relying on new capital inflows or token inflation, structurally similar to a "Ponzi" scheme. The platform attracts user deposits with high returns and then delays redemption through complex "unlocking rules." Those annualized returns in the hundreds or thousands are often just tokens "printed" out of thin air by the platform.

A typical case of an ecological collapse in 2022 was: attracting users by offering annualized returns of up to 20% on stablecoin deposits, but the returns relied mainly on external subsidies rather than real income from within the ecosystem.

Historical experience shows that once external incentives weaken, a large number of subsidy tokens will be sold off, damaging user confidence and causing a spiral decline in TVL and token prices. Data indicates that after the DeFi boom subsided in 2022, about 30% of DeFi projects saw a market cap decline of over 90%, often related to excessive subsidies.

If investors want to find "stable cash flow" from it, they need to be wary of whether there is a real value creation mechanism behind the returns. Using future inflation to promise today's returns is ultimately not a sustainable business model.

Endogenous Returns: Redistribution of Use Value

In short, endogenous revenue is the income that the protocol earns through actual business activities and distributes to users. It does not rely on issuing tokens to attract users or external subsidies, but is naturally generated through real business activities, such as lending interest, transaction fees, and even penalties for default liquidation. This type of income is similar to "dividends" in traditional finance and is referred to as "quasi-dividends" of encryption cash flow.

The main characteristics of endogenous returns are closure and sustainability: the logic of making money is clear, and the structure is healthier. As long as the protocol operates and users are using it, it can generate income without relying on hot money from the market or inflation incentives to maintain operations.

By understanding its "blood-making" mechanism, we can more accurately assess the certainty of returns. Endogenous returns can be divided into three types:

1. Interest Rate Spread Type: This is the most common and easy-to-understand model in the early days of DeFi. Users deposit funds into lending protocols, which match borrowers and lenders, earning a spread from the interest. It is essentially similar to the traditional bank "deposit and loan" model. This type of mechanism is transparent and efficient, but the level of returns is closely related to market sentiment.

2. Fee rebate type: Similar to traditional companies' shareholder dividends or specific partners receiving returns based on revenue proportions. The protocol returns a portion of its operating income (such as transaction fees) to participants who provide resource support. For example, a certain decentralized exchange allocates part of the fees to liquidity providers. In 2024, a certain protocol offers an annualized return of 5%-8% for stablecoin liquidity pools on the Ethereum mainnet, with stakers able to receive over 10% annualized returns during certain periods. These revenues are entirely derived from the protocol's internal economic activities and do not rely on external subsidies.

3. Protocol Service-based Revenue: This is the most innovative type of intrinsic income in encryption finance, similar to the model in traditional business where infrastructure service providers offer key services to clients and charge fees. For example, a certain protocol provides security support to other systems through a "re-staking" mechanism and receives rewards. This type of income reflects the market value of on-chain infrastructure as a "public good," taking various forms, including token points, governance rights, and more.

On-chain Real Interest Rates: The Rise of RWAs and Interest-Bearing Stablecoins

An increasing number of capital in the market is beginning to pursue more stable and predictable return mechanisms: on-chain assets anchored to real-world interest rates. The core logic is to interface on-chain stablecoins or encryption assets with off-chain low-risk financial instruments, such as short-term government bonds, money market funds, or institutional credit, while maintaining the flexibility of encryption assets and obtaining certain interest rates from the traditional financial world. Representative projects include a certain DAO's allocation to short-term government bonds, projects interfacing with a certain large asset management company's ETF, and a financial institution's tokenized money market fund, among others. These protocols attempt to 'import' the Federal Reserve's benchmark interest rate 'on-chain' as the underlying yield structure.

At the same time, interest-bearing stablecoins, as a derivative form of RWA, have also begun to attract attention. Unlike traditional stablecoins, these assets actively embed off-chain yields into the tokens themselves. For example, a certain protocol's stablecoin earns interest daily, with the yields sourced from short-term government bonds, providing users with a stable return close to 4%, which is higher than traditional savings accounts.

These projects attempt to reshape the usage logic of "digital dollar", making it more like on-chain "interest accounts". Under the connection of RWA, RWA+PayFi is also a future scenario worth paying attention to: directly embedding stable income assets into payment tools, breaking the binary division between "assets" and "liquidity". Users can enjoy interest earnings while holding cryptocurrencies, and payment scenarios do not need to sacrifice capital efficiency. An example is the USDC automatic yield account launched by a certain exchange on its L2 network, which not only enhances the attractiveness of cryptocurrencies in actual transactions but also opens up new usage scenarios for stablecoins.

Three Indicators for Finding Sustainable Income-Generating Assets

The evolution of the logic of "encryption "yield-generating assets" reflects the market's gradual return to rationality and the redefinition of "sustainable returns." From the initial incentives of high inflation and governance token subsidies to the increasing emphasis by many protocols on their self-sustaining capabilities and even connecting to off-chain yield curves, the structural design is moving out of the crude phase of "involution-style capital absorption" towards more transparent and refined risk pricing. In the current environment of high macro interest rates, encryption systems must build stronger "yield rationality" and "liquidity matching logic" to participate in global capital competition. For investors seeking stable returns, the following three indicators can effectively assess the sustainability of yield-generating 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 and transaction fees. If returns primarily rely on short-term subsidies and incentives, it resembles a "musical chairs" game: returns exist while subsidies are available; once subsidies stop, the funds will flow away. Long-term "subsidy" behavior may deplete project funds, leading to a vicious cycle of declining TVL and coin prices.

2. Is the structure transparent? Trust on-chain comes from openness and transparency. Investors should pay attention to: Is the flow of funds on-chain clear? Is the interest distribution verifiable? Is there a risk of centralized custody? If these issues are not clear, there may be black box operations that expose system vulnerabilities. A financial product with a clear structure and an on-chain open, traceable mechanism is the real underlying guarantee.

3. Are the returns worth the opportunity cost in reality? Against the backdrop of the Federal Reserve maintaining high interest rates, if the returns of on-chain products are lower than the yields of government bonds, it will be difficult to attract rational funds. If on-chain returns can be anchored to real benchmarks such as short-term government bonds, they will not only be more stable but may also become the "interest rate reference" on-chain.

However, even "yield-bearing assets" are not truly risk-free assets. No matter how robust their yield structure is, one must remain vigilant about the technical, compliance, and liquidity risks inherent in the on-chain structure. From whether the clearing logic is sufficient, to whether the protocol governance is centralized, to whether the asset custody arrangements behind RWA are transparent and traceable, all of these determine whether the so-called "certain yield" has real cashable capability.

The future interest-bearing asset market may be a reconstruction of the on-chain "money market structure". In traditional finance, the money market plays a core role in fund pricing through its interest rate anchoring mechanism. Now, the on-chain world is gradually establishing its own concepts of "interest rate benchmarks" and "risk-free returns", forming a thicker financial order.