Is a Fair DeFi Yield 12.5%? If So, Then Why Has the Market Settled on 3-8%

Summary

Tom Dunleavy argues that a fair blended DeFi yield is around 12.5%, incorporating various risk premia like technical expected loss, oracle manipulation, governance risk, and model uncertainty. Adrian Cachinero Vasiljevic counters that there is no single DeFi yield; it depends on the specific asset class and protocol. They discuss the challenges of pricing risk in DeFi and the importance of protocol simplicity and immutability.

• Tom proposes a 12.5% fair blended DeFi yield from a risk-premium stack.
• Adrian argues that DeFi yields vary by primitive and collateral type.
• Technical expected loss from hacks is estimated at 0.5-2% annualized.
• Oracle manipulation is treated as a separate risk vector from code exploits.
• Governance and social layer risks are additional unique to DeFi.
• Rehypothecation of exotic collateral creates hard-to-quantify risks.
• Adrian's Steakhouse focuses on curated, high-quality DeFi pools.
• The discussion highlights the need for better risk pricing in DeFi lending.