Boosted Yield

Users deposit collateral (e.g., ETH) into a lending protocol to borrow a stablecoin, then redeposit that borrowed capital to earn yield on both the original and borrowed amounts. This amplifies returns but introduces liquidation risk if the collateral value falls.

• Example: Deposit $10k ETH, borrow $7k USDC, deposit the USDC for yield. You now earn yield on $17k of capital.

Supplying assets to an Automated Market Maker (AMM) pool generates yield from trading fees. Boosted strategies often concentrate liquidity within a specific price range (Concentrated Liquidity) to maximize fee earnings from active trading, increasing capital efficiency.

• Key Protocol: Uniswap V3 pioneered concentrated liquidity, allowing LPs to define custom price ranges for their capital.

Protocols distribute their native governance tokens as additional rewards to users who provide liquidity or stake assets. This emission-based yield is layered on top of base fees or interest. Rewards are often calculated based on a user's share of the total liquidity pool.

A model where users lock governance tokens (e.g., CRV, BAL) for a set period to receive veTokens. These grant:

• Boosted rewards on liquidity provision.
• Governance voting power.
• Revenue share from protocol fees.

Longer lock-ups yield higher boosts, aligning long-term incentives.

Yield aggregators (e.g., Yearn Finance) automate the process of moving user funds between different lending and liquidity protocols to chase the highest risk-adjusted yield. Users deposit into a single vault, and the strategy automatically compounds rewards and rebalances.

Allows Ethereum stakers to restake their native ETH or Liquid Staking Tokens (LSTs) to secure additional Actively Validated Services (AVS) like rollups or oracles. In return, users earn extra rewards on top of their base staking yield, but assume additional slashing risk.

By offering boosted rewards, protocols attract more capital to their liquidity pools. This increased Total Value Locked (TVL) directly reduces slippage for traders, creating a more efficient and attractive market. For example, a DEX can target specific trading pairs to ensure large orders execute at predictable prices.

Yield incentives act as a powerful bootstrapping mechanism for new protocols. By rewarding early LPs, a project can rapidly build a critical mass of liquidity and users, overcoming the initial cold start problem. This creates a flywheel effect where more liquidity attracts more traders, which in turn generates more fees.

Protocols often distribute their governance tokens as yield rewards. This strategically aligns LPs with the protocol's long-term success, as token holders become vested stakeholders. This fosters a community of protocol-aligned capital that participates in governance votes and helps steer the project's development.

Boosted yield campaigns drive trading volume, which directly increases the protocol's fee revenue. While rewards are an upfront cost, the resulting activity creates a sustainable income stream from swap fees. Successful protocols like Uniswap and Curve use this model, where trading fees ultimately sustain liquidity without permanent inflation.

Protocols offering boosted yield become attractive building blocks within DeFi's money legos. Other applications, such as yield aggregators, lending protocols, and structured products, can integrate these pools to offer enhanced returns to their own users, amplifying the protocol's reach and utility across the ecosystem.

Advanced protocols use systems like gauge voting (pioneered by Curve Finance) to let token holders direct emission rewards to specific pools. This allows for capital efficiency by concentrating incentives where they are most needed, such as on new stablecoin pairs or pools critical to the protocol's strategic goals.

Boosted yield is generated by combining base trading fees with supplementary liquidity mining rewards, often in the form of governance tokens. Protocols may also use vote-escrowed token models (veTokens) to provide higher rewards to long-term, committed LPs. The boost is calculated based on factors like the provider's share of the pool and their lock-up commitment.

A primary risk calculation involves weighing amplified impermanent loss against the value of extra rewards. If the price of the deposited assets diverges significantly, the impermanent loss may outweigh the boosted yield, leading to a net loss. LPs must model asset volatility and reward token price stability to assess this trade-off.

Boosted pools often involve more complex smart contracts and integrations, increasing the attack surface. Risks include:

• Bugs in reward distribution or staking logic.
• Governance token devaluation if rewards are inflationary.
• Dependency on the security of multiple underlying protocols.

Many boosting mechanisms require time-locked capital or bonded positions, reducing liquidity. Exiting a position early may forfeit boosted rewards or incur penalties. LPs must ensure sufficient exit liquidity exists in the pool to withdraw assets without excessive slippage, especially during market stress.

The long-term viability of boosted yields depends on the tokenomics of the reward asset. Key questions include:

• Is the reward emission inflationary or funded by protocol revenue?
• What is the emission schedule and expected dilution?
• Can the protocol's treasury sustain rewards after initial incentives end?

Common implementations include:

• Curve Finance's veCRV model: Locks CRV to boost rewards on stablecoin pools.
• Balancer Boosted Pools: Uses Aave and similar protocols to lend out idle assets for extra yield.
• Compound-style liquidity mining: Distributes COMP tokens to suppliers and borrowers.