How do people earn yield outside of Bitcoin? What is yield and how do people earn yield in traditional capital markets right now? Yes, we are going to talk from an esoteric perspective of like what is yield? Yield as a classical definition is earning something for taking on risk.
So, this should be like I lend someone 10,000 dollars to start a business. They pay me back and they owe me a certain amount of interest. That is a yield that I generate to yield. I am earning money with my money. But, I am taking risk in order to take that yield. Typically, the interest rate of the yield that you generate is somewhat correlated with the riskiness of the investment.
It is very high risk and you want to be paid back sooner for the risk that you are taking on for your principle on your original amount you lent out. So, with Bitcoin a lot of people I think are super interesting and earning a yield on their Bitcoin, but they should remember that ultimately they are always taking on risk. This is not HODL-ing or your own self custodian solution, you are taking on risk.
And, you are hoping that you have assessed the risk properly, to where your return will outstrip the risk that you have taken that is the case in any investment. Not every investment wins. In some investments the risk goes assessed poorly. And, assessed poorly means you will lose money. And lose some of the principle.
Summation of what yield ultimately represents: Yield is the monetization of tailed risk. So, we look at the risk at the default of a loan. We look at the risk of like the smart contract failure, a Defi yield, we look at also to different risks. And, what yield really represents is the manifestation of that risk in the form of compensation.
So, that is what yield is at a high level. With Bitcoin, there is a lot of different ways to earn yield. And, basically what that means is that there is a lot of different ways you can risk your Bitcoin. And, each one has its own tradeoffs.
And, each on has its own tradeoffs that make it more palatable for some people and there is no free lunch in this world and there is always tradeoffs with everything that we do.
When did you first start earning yield on your Bitcoin? Back in 2019. So, it has been almost 2 years. I am one of those first folks right up. I have a monthly yield report where I go through in detail through all the different types of investments that I am trying out.
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