in DeFi Earning

Remember the shared pot of two tokens from last checkpoint. The people who fill it are called liquidity providers, or LPs. Every trade against that pot pays a small fee, and the fee goes to them. The tenant is the trader. The rent is real.

One honest warning, named now and explained in full later. Funding a pool carries a risk called impermanent loss: when the two token prices drift apart, the pool quietly rebalances and you can end up with less than if you had simply held. Real yield, real risk, both on the table.

A lending market like Aave is a machine that matches lenders with borrowers. You deposit, a borrower takes a loan, and the borrower pays interest that lands in your balance. The tenant is the borrower. The rent is the interest.

The safety trick is over-collateralization: the borrower must lock up more value than they borrow. If their collateral drops too far, the code sells it to repay you automatically. No staff, no goodwill, just rules that run.

The third payer is the blockchain itself. When you stake ETH you lock it up to help keep the network honest and producing blocks. In return the protocol pays you. It is a wage for a service, not a gift.

So before we move on, one quick check on what you are actually being paid for.

You now have a test. For any yield, point at the tenant: trader, borrower, or network. If you can, the rent has a source.

But some products show you a fat yield with nobody in the payer slot. The money still arrives, for a while. That gap is where the most expensive lessons in this space have been taught.

In May 2022, a protocol called Anchor, on the Terra network, promised around 20% on a so-called stable dollar called UST. People poured in. The catch: most of that yield was paid out of the project's own subsidy, not by any trader, borrower, or network.

When the subsidy ran thin, confidence cracked, the stable dollar lost its peg, and the whole system unwound. Tens of billions of dollars in value were erased in days.

It is tempting to walk away with a shortcut: big number, run away. That shortcut is wrong, and being wrong here costs you real opportunities.

So you can leave this checkpoint with one habit that outlasts every app and every trend. When a yield is offered, ask where it comes from. Trader fees, borrower interest, or a network wage means a real tenant is paying rent.

A subsidy or a stream of new deposits means the slot is empty, and the only tenant left is you.

Money is not the only thing locked in these machines. Some of it is art, tickets, names. Next: what owning a digital thing even means.