How Is 12% Crypto Yield Even Possible? DeFi’s High Interest Explained

How It Works

• Lending & Borrowing Economy: Platforms borrow user deposits—often from hedge funds or margin traders—at rates of ~20% or more. They then pass a portion (e.g. 12%) back to depositors while keeping the spread.
• Staking & Yield Farming: In staking, holders lock tokens (like SOL or ETH) in validator networks and earn rewards over time. Yield farming involves depositing assets into liquidity pools to earn transaction fees. Both systems compound returns, often advertised using APY.
• APR vs. APY: APR is simple annual percentage return on principal. APY includes compounding interest. A 12% APR translates to slightly more with APY.
• Risks Involved: Smart contract bugs, impermanent loss, hacks, and counterparty failure are real threats. And yields can vary or drop quickly.

Why It Matters Globally

Coinccino Insight

“12% sounds exciting next to 0.5% interest—but it comes with real risk. It isn't free money; platforms earn by lending and staking your tokens in higher‑risk markets. Smart investors must verify collateralization, audit history, and withdrawal rules before chasing high yield.”