Why DeFi Yields for Lenders Are Low Even Though the Risk Is High

Summary

The video discusses why DeFi lending yields are low despite high risk, exploring factors like convenience yield, tax friction, censorship resistance, and liquidity. Guests Tom Dunleavy and Adrian Cachinero Vasiljevic debate whether yields truly compensate for tail risk and how DeFi compares to traditional finance. The conversation is analytical and does not offer direct trade recommendations.

• Tom Dunleavy argues that DeFi yields are too low relative to the risk, citing recent hacks as evidence.
• Adrian Cachinero Vasiljevic points out that convenience yield and tax friction justify lower yields for onchain-native users.
• Adrian also notes that DeFi overcollateralized Bitcoin lending is more liquid than traditional markets, leading to a liquidity discount.
• The discussion touches on whether the risk-free rate should be based on 10-year Treasuries or SOFR.
• Tom emphasizes that short time series in crypto make it hard to accurately price risk.
• Adrian contrasts DeFi's transparency with traditional finance failures like Credit Suisse.
• The episode is part of a larger debate on whether DeFi lending yields adequately compensate depositors.
• No specific tradeable securities or directional trades are recommended.