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How is yield generated?
Understand more on how the APY is generated.
Return Finance acts as a bridge between the traditional financial system and Decentralized Finance (DeFi). Our strategy involves providing liquidity to so-called Automated Market Maker (AMM) protocols. All funds deposited into the Return Finance application are provided as liquidity on leading DeFi protocols and utilize governance token rewards. This gives our depositors the ability to gain a high Annual Percentage Yield on their savings.
Our service exchanges Euros and U.S. Dollars for their digital counterparts, Euro Coin (EURC) and United States Dollar Coin (USDC), respectively. These digital currencies, known as stablecoins, are virtual versions of traditional fiat currencies. They are 100% backed by fiat reserves and fully regulated. This ensures a transparent and straightforward conversion and tracking process.
Annual Percentage Yield (APY) is a measure used in DeFi to express the annualized rate of return or interest earned on an investment or deposit. It takes into consideration how often the interest is reinvested or added back to the principal amount. By factoring in compounding, APY provides a more accurate representation of the actual return on an investment compared to a simple interest rate.
Curve (CRV) is widely recognized as one of the biggest and most popular platforms in DeFi due to its emphasis on stability and composability rather than volatility and speculation. Based on automated market makers (AMMs), the protocol offers a highly efficient way to exchange tokens while maintaining low fees and low slippage.
In order to ensure lower fees for the liquidity providers who supply the pools with tokens, Curve is only accommodating liquidity pools made up of similarly behaving assets. The protocol incentivizes the liquidity providers (LPs) to participate, by integrating with external DeFi protocols and delivering rewards in the form of CRV tokens and interest.
The Curve protocol is governed by its ERC-20 token called CRV, which enables CRV token holders to suggest and participate in voting for modifications to the platform. Providing liquidity to specific Curve liquidity pools is a means to earn CRV tokens.
Voted modifications to the Curve protocol may involve adjusting fees, modifying fee allocation, introducing new liquidity pools, and altering yield farming incentives. Holders of CRV tokens are able to cast their votes to approve or reject a proposal by staking their CRV tokens. The voting power of a CRV token increases with the duration of its staking period.
Convex Finance (CVX) is another decentralized finance platform that provides boosted staking rewards on the Curve protocol and acts as a yield optimizer for CRV token holders and Curve liquidity providers.
Conic Finance simplifies the complex world of decentralized finance (DeFi) by offering an all-in-one solution for managing your investments. Relying on the unique Omnipools, you don't have to worry about choosing which liquidity pools to invest in. Conic automatically diversifies your funds across multiple top-performing pools on Curve Finance, maximizing your potential rewards. You can earn multiple types of digital tokens like CRV, CVX, and its own CNC token, which gives you a say in how the platform evolves. Every two weeks, CNC token holders can participate in decision-making to update how the funds are distributed across the pools. With Conic Finance, you get simplified, secure, and democratic access to the high-yield opportunities of DeFi.
Exactly Finance is a platform in the decentralized finance (DeFi) space that aims to make lending and borrowing simpler and more predictable. Unlike many other DeFi platforms that offer fluctuating or complex interest rates, Exactly provides options for both fixed and variable interest rates. Fixed rates give you the certainty of knowing what you'll earn or owe over time, while variable rates offer more flexibility. Exactly sets these interest rates based on the supply and demand for different types of assets and loan terms, making the system straightforward and efficient. Whether you're looking to lend or borrow, Exactly aims to make the process as easy as possible.
Yearn Finance is a leading DeFi platform that originated as a yield optimization service called iEarn by Andre Cronje. It has since evolved into a comprehensive asset management tool that automatically channels user deposits into high-yield strategies across various tokens, not just stablecoins. Known for its innovative 'Vaults,' Yearn Finance dynamically selects the best yield-generating opportunities, allowing users to earn competitive returns while keeping exposure to their preferred assets. In essence, it serves as an automated portfolio manager, maximizing returns on cryptocurrencies through its smart contract-based strategies.
Compound is a decentralized finance (DeFi) protocol built on the Ethereum blockchain, designed to facilitate the borrowing and lending of cryptocurrency assets. Unlike traditional financial systems or even some other DeFi platforms, Compound automates the interest rate determination through algorithms, taking into account supply and demand for each asset. Users can earn interest by supplying their tokens to a communal pool, from which others can borrow. The protocol features variable interest rates that automatically adjust based on asset demand. Importantly, the assets supplied to Compound can be withdrawn at any time, providing liquidity and flexibility to its users. It offers a way to earn interest on idle cryptocurrency holdings or to borrow needed assets by putting up collateral, all without relying on intermediaries.
Automated market makers (AMMs) form an integral part of the DeFi landscape, enabling the trading of digital assets in an automatic and permissionless manner. They replace the traditional buyer-seller market model with liquidity pools, where users contribute crypto tokens to determine the price based on a constant mathematical formula.
Liquidity pools can be customized to suit various objectives and have become a vital tool within the DeFi ecosystem. AMMs represent a novel financial instrument exclusive to Ethereum and DeFi, which operates independently, is always available for trading, and does not depend on conventional buyer-seller interaction.
This pioneering trading system embodies the principles of Ethereum, crypto, and blockchain technology, as it is free from any centralized control, and allows anyone to participate and create new solutions. Other traditional assets like stocks, gold, and real estate rely on the traditional market structure for trading.
Decentralized exchanges (DEXs) on Ethereum faced a liquidity challenge before the advent of AMMs. With a small number of buyers and sellers on the platform, it was difficult to find enough people willing to trade regularly, given the complexity of the interface.
AMMs resolved this challenge by creating liquidity pools and incentivizing liquidity providers to supply them with assets. The more assets a pool holds and the more liquidity it has, the easier trading becomes on decentralized exchanges. On AMM platforms, users trade against a pool of tokens known as a liquidity pool, instead of trading between buyers and sellers.
Essentially, a liquidity pool is a shared pot of tokens whose price is determined by a mathematical formula that can be optimized for different purposes. Anyone in possession of any type of ERC-20 tokens and with an internet connection can become a liquidity provider by supplying tokens to an AMM’s liquidity pool.
Liquidity providers earn a fee for providing tokens to the pool, which is paid by traders who interact with the pool. In recent times, liquidity providers have also been able to earn yield in the form of project tokens through a process known as "yield farming."
These pools follow a simple mathematical formula that determines the price of tokens, and by tweaking the formula, liquidity pools can be optimized for different purposes.
The most commonly used formula is:
x * y = k
This formula keeps the pool in constant balance, where the total value of one asset in the pool will always equal the total value of the other asset.
It ensures that prices stay in balance and return to a relatively accurate market price, incentivizing traders to exploit price differences between the AMM and outside crypto exchanges until the prices are balanced again. The constant formula is the unique feature of AMMs, and it determines how they function.