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Yield-generating assets represent a share of an underlying asset pool that generates the yield. These assets allow users to earn yields on their assets by lending, liquid staking, or providing liquidity to a decentralized exchange.
Here are some common yield-generating assets in DeFi:
- Liquidity Provider (LP) Tokens: LP tokens represent a user's liquidity share in a pool. LP tokens can be traded or bonded for yields.
- Liquid Staked Tokens: A subset of yield-generating assets, liquid-staked assets are a claim on the underlying staked assets and can be redeemed for them and the accrued rewards based on an exchange rate. Users can mint these tokens by staking their assets with liquid staking protocols like pSTAKE and Stride on Cosmos, LIDO on Ethereum, and Marinade on Solana, which take care of staking their assets with validators in the background while issuing these tokens in return.
- Lending Platforms: Lending platforms allow users to lend their assets to other users in return for interest payments. The interest rate varies depending on the supply and demand of the platform. For example, interest-bearing cTokens on Compound (e.g., cDAI ) where cTokens accumulate interest through their exchange rate — over time, each cToken becomes convertible into an increasing amount of its underlying asset, even while the number of cTokens in your wallet stays the same.
Overall, yield-generating assets in DeFi can allow users to earn passive income on their assets. Support for these assets enables liquidity providers to earn an additional yield on their assets (through Dexter's Swap Fees/Liquidity Mining Incentives/Yield Farming).