lending and yield
A yield is not a property of an asset. It is a payment from a counterparty, and the only useful question about any lending product is who that counterparty is and what happens when they cannot pay.
Four sources, four different risks
| Source | Who pays | Primary risk |
|---|---|---|
| Margin lending | Leveraged traders borrowing your asset | Liquidation failure in a fast market, venue credit risk |
| Protocol staking | The network, through issuance and fees | Slashing, lock-up periods, validator failure |
| DeFi lending pools | Borrowers, algorithmically matched | Smart contract failure, collateral depegs, oracle failure |
| Platform promotions | The platform, from its own budget | Not a yield. A marketing cost that ends |
The custody question sits above all of it
In most centralised earn products the asset leaves your control and becomes a claim on the platform. That is the core lesson of the 2022 failures and of the wind-down that followed: the New York Department of Financial Services announced in February 2024 that it had secured a commitment to return at least 1.1 billion dollars to Gemini Earn customers, and the SEC action against Gemini Trust Company was dismissed with prejudice in January 2026 after a full in-kind return of assets. Customers were made whole in that case; being made whole two years later is still a two-year outage on capital you planned to use.
Sizing rather than avoiding
- 01Treat lending allocations as unsecured credit exposure, not as savings.
- 02Cap total exposure to any single platform, and separately to any single asset.
- 03Prefer products with published terms, defined lock-ups and a named regulated entity.
- 04Ignore the headline rate until you have answered the three questions above.
There is no such thing as a yield without a borrower. If you cannot name one, you are the product.
Written by Aram Latifi. Ex-quant developer, now writing about the plumbing of retail trading. No affiliate links on this site.
