Exploring Historical and Current Yields Onchain

Key Insights

• Capital tends to follow incentives, and the best measure of capital incentives is tracking the yield or APY rates across different ecosystems.
• Historically, spikes in yield within an ecosystem can signal future capital in flow to the ecosystem. This is especially true when the yields and underlying assets are in highly valued assets like stablecoins.
• The current yield environment is seeing converging yields across major ecosystems as the predominate Layer-2 trading narrative subsides. This lack of a clear capital narrative has historically coincided with stalled or declining broader markets.
• Monitoring for future spikes in yields within the top and emerging ecosystems can indicate when the market is ready to concentrate capital flows again.

Much how molecules naturally flow from areas of high concentration to low, so does capital flowing from saturated, low-yield areas to new, high-yield opportunities. The APY rate acts as a measure of incentive where, if greater than the present rate, will attract capital to the investment pool until the yield is saturated back down to the market level (assuming risk is comparable).

This effect plays out in crypto as capital rotates to new pools, protocols, or chains which boast higher yields driven either by larger user activity (fee income) or incentive programs (token rewards).