Seeking On-chain Certainty: Analyzing Three Types of Encryption Income Assets

In today's world, macro uncertainty has become the norm. In an era where black swans and gray rhinos coexist, investors are not only pursuing returns but also seeking assets that can withstand volatility and have structural support. "Encryption interest-bearing assets" in the on-chain financial system may represent this new form of certainty.

Since the Federal Reserve began its rate hike cycle in 2022, the concept of "on-chain interest rates" has gradually entered the public eye. In the face of a real-world risk-free interest rate that has long maintained at 4-5%, crypto investors have begun to reassess the sources of returns and risk structures of on-chain assets. The emerging concept of Yield-bearing Crypto Assets has emerged, attempting to construct financial products on-chain that "compete with the macro interest rate environment."

However, the sources of income for yield-bearing assets vary greatly. From the cash flow generated "in-house" by the protocol itself, to the illusion of income relying on external incentives, and then to the grafting and transplantation of off-chain interest rate systems, the different structures reflect distinctly different sustainability and risk pricing mechanisms. Currently, yield-bearing assets in decentralized applications (DApps) can be roughly divided into three categories: exogenous income, endogenous income, and real-world asset (RWA) linkage.

Exogenous Returns: Subsidy-Driven Interest Illusion

The rise of exogenous returns is a reflection of the early rapid growth logic of DeFi. In the absence of mature user demand and real cash flow, the market has resorted to "incentive illusion". Many ecosystems have launched substantial token incentives, attempting to attract user attention and lock assets through the method of "yield farming".

These types of subsidies are essentially more like short-term operations where the capital market "pays" for growth metrics, rather than a sustainable profit model. They were once standard for the cold start of new protocols, whether it's Layer2, modular public chains, LSDfi, or SocialFi, the incentive logic is almost identical: relying on new capital inflows or token inflation, the structure is similar to a "Ponzi" scheme. Platforms attract users to deposit money with high returns, and then delay the redemption through complex "unlocking rules."

The collapse of Terra in 2022 is a typical example. The ecosystem offered annualized returns of up to 20% on UST stablecoin deposits through the Anchor protocol, attracting a large number of users. However, these returns mainly relied on external subsidies rather than genuine income within the ecosystem.

Historical experience shows that once external incentives weaken, a large number of subsidized tokens will be sold off, damaging user confidence and causing a death spiral decline in TVL and token prices. Data shows that after the DeFi craze subsided in 2022, about 30% of DeFi projects saw a market value drop 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 income is the revenue earned by the protocol through "doing real work" and redistributed to users. It does not rely on issuing tokens to attract users or external subsidies, but is generated naturally through real business activities, such as lending interest, transaction fees, and even penalties from default liquidations. This income is similar to "dividends" in traditional finance and is also referred to as "quasi-dividends" in the context of encryption cash flow.

The biggest characteristics of this type of income are closure and sustainability: the logic of making money is clear, and the structure is healthier. As long as the protocol operates and there are users, it can generate income without relying on market hot money or inflation incentives to maintain operation.

Endogenous returns can be divided into three prototypes:

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 this. Its essence is similar to the traditional bank "deposit and loan" model. This type of mechanism is structurally transparent and operates efficiently, but the level of returns is closely related to market sentiment.

2. Fee rebate type: This type of profit-sharing mechanism is closer to the structure where traditional company shareholders participate in profit distribution or specific partners receive returns based on revenue ratios. The protocol returns a portion of operational income (such as transaction fees) to participants who provide resource support, such as liquidity providers or token stakers.

3. Protocol Service Type Revenue: This is the most structurally innovative endogenous income in encryption finance, logically similar to the model where infrastructure service providers in traditional business provide key services to clients and charge fees. Taking EigenLayer as an example, the protocol provides security support for other systems through the "re-staking" mechanism and receives returns. This type of revenue does not rely on lending interest or transaction fees, but rather comes from the market pricing of the protocol's own service capabilities.

On-chain Real Interest Rates: The Rise of RWA and Interest-earning Stablecoins

An increasing amount of capital in the market is beginning to pursue more stable and predictable return mechanisms: on-chain assets are pegged to real-world interest rates. The core logic is to connect on-chain stablecoins or encryption assets to 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 "the certainty of interest rates in the traditional financial world."

At the same time, interest-bearing stablecoins, as a derivative form of RWA, have also begun to attract attention. Unlike traditional stablecoins, these assets are not passively pegged to the US dollar but actively embed off-chain yields into the tokens themselves. They aim to reshape the usage logic of the "digital dollar" to make it more like an on-chain "interest account."

Under the connectivity 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". This not only enhances the appeal of encryption in actual transactions but also opens up new use cases for stablecoins.

Three Indicators for Finding Sustainable Income-Generating Assets

1. Is the source of income "endogenous" and sustainable? Truly competitive income-generating assets should derive their earnings from the protocol's own business, such as lending interest, transaction fees, etc. If it mainly relies on short-term subsidies and incentives, it is easy to fall into a vicious cycle of capital outflow.

2. Is the structure transparent? On-chain trust comes from openness and transparency. Is the flow of funds clear? Is the interest distribution verifiable? Is there a risk of centralized custody? These are all key issues that need to be considered.

3. Do the returns justify the opportunity cost in reality? In a high interest rate environment, if the returns from on-chain products are lower than the yields of government bonds, it will be difficult to attract rational capital. Anchoring on-chain returns to real benchmarks like T-Bills not only provides more stability but may also become an "interest rate reference" on-chain.

However, even "yield-bearing assets" are not truly risk-free assets. Regardless of 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, and to whether the asset custody arrangements behind RWA are transparent and traceable, all of these determine whether the so-called "certain yield" has real cashability.

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