A yield of 200% sounds like it solves your financial problems. But before you move any funds, it's worth understanding what's actually generating that number — and what could take it away.
The Four Things Eating Your Yield
Smart-contract risk is the starting point. A smart contract is a piece of code that automatically holds and moves your funds according to preset rules. No human approves each transaction. If that code has a bug, an attacker can exploit it — and funds have been drained from protocols that had been running for months without incident. Bigger protocols attract more security audits, but "more audited" is not the same as "safe."
Depegs matter most in stablecoin pools. A stablecoin is a token designed to hold a fixed value, usually $1. When it loses that peg — even briefly — a pool built around it can collapse in value faster than you can withdraw. The word "stable" describes the intention, not a guarantee.
Low liquidity is a quieter risk. Liquidity refers to how easily you can enter or exit a position without moving the price against yourself. A small pool might show an attractive APY (Annual Percentage Yield — the annualised rate of return including compounding), but if you try to withdraw a meaningful amount, you may receive far less than expected. Thin pools also tend to be more volatile.
Reward-token inflation explains most triple-digit APYs. Many protocols pay yield partly in their own newly minted tokens. When lots of people chase that yield, the token price often falls — sometimes faster than the rewards accumulate. The APY figure stays high on screen while your real returns quietly shrink.
There's also impermanent loss to consider if you're providing liquidity to a trading pool. This is a temporary (sometimes permanent) reduction in your position's value compared to simply holding the assets — caused by price divergence between the two tokens in the pool.
The Question Worth Asking
Before any yield grabs your attention, ask: where is this return actually coming from? Real fee revenue from a busy protocol is more durable than token emissions from a new one trying to attract depositors.
You can compare pools side by side — APY, TVL (Total Value Locked, a rough measure of how much capital a protocol holds), and pool type — using the comparison table. The numbers won't make the decision for you, but they'll tell you what questions to ask next.