Risk Adjusted Yields

Risk adjusted yields are returns on investment that have been normalized to account for the level of risk taken to achieve them. In crypto, where yields can be exceptionally high, it is essential to consider the underlying risks, such as smart contract vulnerability, impermanent loss, or protocol failure.

A high yield that carries a high risk of capital loss may not be attractive to sophisticated investors. By comparing yields against a risk-free benchmark, traders can make more informed decisions about where to allocate their capital.

This metric is fundamental to the professionalization of crypto-finance. It helps distinguish between sustainable growth and speculative bubbles.