The Onchain Yield Problem

Dear DeFi: you deserve better.

The onchain yield landscape today just isn’t cutting it. The problem isn’t a lack of options. Choose your adventure: onchain money markets, delta neutral strategies, staking protocols, or whatever yield farm is trending this week. The problem is that none of these options offer what yield should offer: stability, transparency, and sustainability.

DeFi users deserve more than reflexive rates, mystery meat emissions, and point-chasing games. Yields shouldn't rug. They should consistently reward.

At Mu Digital, we believe a superior yield primitive is overdue: one designed to deliver attractive, transparent and predictable returns from real economic activity. The evolution of real world assets will help guide a more sustainable DeFi future.

Onchain Yields Are Volatile

In traditional finance, yield products promise a relatively stable investment return. Cash flow you can count on. Onchain? It’s a wild ride.

Most onchain yields today are reflexive. They don’t come from real economic activity, but from the performance of other crypto assets. The majority of “native yield” is funded by perpetual swap funding rates, which are themselves a byproduct of speculative demand.

In bull markets, perp traders pay high funding to stay long, and protocols pass that income along to users as “yield’. But when sentiment turns, funding dries up; and so does the yield.

It’s a circular system: crypto assets generate yield based on the trading activity of other crypto assets. There’s no diversification, no resilience and ultimately, no stability. As the broader crypto markets go – so do yield products fluctuate. In volatile markets (like that as of the time of publishing this piece), one might experience 30% yields yesterday that degrade to 3% tomorrow. In some cases yields have gone negative.

That’s not yield folks – it’s leverage wearing a different jersey.

Onchain Yields Are Opaque

Try explaining where your DeFi yield comes from today. Without using the words “multiplier” or  “points.”

Many onchain yield offerings suffer from a lack of transparency. Rather than deriving returns from identifiable, sustainable cash flows, they often rely on token emissions, liquidity incentives, or points programs that obscure the true source of yield.

Even seemingly “stable” rates are frequently subsidized to attract short-term capital inflows, rather than reflecting genuine borrower demand. For serious capital allocators, this presents a problem: without clarity on what’s driving returns, it’s impossible to assess risk, sustainability, or long-term viability.

At a fundamental level, any yield product should have clear transparency on what backs the promised returns. The base layer is the most important. Assets come in all flavors - with varying levels of risk / return characteristics. Not all risk is bad. In fact, risk is required to expect outsized returns. But any DeFi user should understand the underlying asset and associated risk they are taking.

Any yield that includes a component of token emissions or points program to boost yields introduces a whole new set of complexities. Returns on token emissions must assume a base price on the token launch performance. In volatile markets - such as today – this is a near impossible task. Point programs similarly need be fully transparent on what may change points allocations (and thus yield).

Transparent yield means knowing the underlying cash flows, not just chasing rewards.

Onchain Yields Should Be Guaranteed

DeFi has conditioned users to expect high, variable returns as the norm. That’s a dangerous precedent. In traditional finance, credit is synonymous with a more stable, predictable investment class.

Credit guru Howard Marks (Oaktree Capital) often highlights a fundamental advantage of credit lending: contractual certainty. Credit investments come with defined terms: interest payments, maturity dates, and legal recourse. These factors give investors a predictable path to returns.

Onchain yields, by contrast, rarely offer this kind of structure. They’re fluid, market-driven, and often governed more by tokenomics than enforceable obligations. But DeFi doesn’t have to reinvent the wheel. Yield should be grounded in contractual commitments - guaranteed payments tied to real-world performance, not abstract incentive loops.

That’s how we move from speculation to reliability; how we build financial primitives that serious capital can trust.

It’s Time to Reset the Yield Narrative

DeFi needs a new foundation. One that starts with credible, stable returns anchored in the real world.

At Mu Digital, we’re introducing a different primitive: connecting real-world corporate borrowers with onchain capital. That means:

• Real yield from real revenue-generating activity

• Transparent underwriting and borrower visibility

• A bridge between TradFi credit and DeFi efficiency

This is the path forward. Because yield shouldn’t just be another crypto game. It should be the backbone of capital formation onchain.

Follow our blog and our X @MuDigitalHQ to track how we are evolving the future of DeFi.