The hidden costs of yield

Crypto offers yields that dwarf traditional finance, and the module's job is the unglamorous one: naming what each yield is payment for, because none is a free return on a held coin.

The yields and their risks

• Lending yield: coins lent to a borrower - an exchange, a protocol, a counterparty - earn interest, and the interest is the price of the counterparty risk from module 1 lesson 5; the borrower failing means the coins gone, and crypto's lending failures are on the public record.
• Staking yield: coins locked to secure a network earn rewards - real, protocol-native income - at the cost of a lock-up (the coins are illiquid, unsellable in a crash) and slashing risk (misbehaviour or downtime can forfeit some stake).
• Liquidity provision: coins supplied to a trading pool earn fees, at the cost of impermanent loss - the pool rebalances against the provider when prices move, so a volatile pair can leave the provider worse off than simply holding, fees notwithstanding.

Reading a yield honestly

The advertised APR is half the trade; the unstated half is the risk it compensates. A high lending yield signals high counterparty risk - the market pricing the chance of loss, exactly as a high bond yield does - so the biggest advertised numbers are often the biggest risks wearing a return's costume. The habit from the equity borrow lesson, generalised: read the yield as the market's price for a risk, then ask whether the risk is one you understood before the percentage tempted you.

The custody thread

Most crypto yield requires giving up self-custody - lending needs the counterparty to hold the coins, staking locks them, provision commits them to a pool. So yield is a custody decision from module 1, priced: the return is earned by taking on exactly the counterparty and lock-up risks that lesson taught, and the two must be weighed together. Spot ownership in self-custody earns no yield and takes no such risk - the track's default, and the honest baseline against which every offered percentage is a risk-for-return trade, never a free lunch.