I’m amazed no one has ever asked where the yield in DeFi comes from. In case you are interested, the yield in DeFi is ultimately subsidized by the poor retail traders who consistently lose money on centralized exchanges.

Because their EV is negative, their counterparties’ EV must be positive. Who are their counterparties? Professional traders: market makers, algo traders, event driven traders, etc.

One of the biggest problems these professional traders face is capital efficiency. If they want to leverage long, they need to borrow USDT. If they want to short, they borrow native cryptoassets. (They can also do so synthetically via derivatives.)

Most of the borrowing and lending happens on centralized platforms like OTC desks, of course. But centralized rates are ultimately passed on to decentralized platforms. Or else there’s arbitrage.

So if you are making a fuck load of money right now farming DeFi yields, be thankful for the poor souls who just got liquidated by Arthur.