DeFi lending APYs change because the balance of supplied and borrowed assets changes, and protocols translate that utilization into variable rates. Incentive rewards can raise a displayed yield, but they are separate from lending interest. To estimate what you actually earned, track your position’s balance and rewards over the time you held it, then subtract transaction and exit costs.
Why does a DeFi lending APY change?
Borrowing and supply change utilization
Utilization is the share of a market’s supplied assets that borrowers are using. When borrowing increases or suppliers withdraw, utilization rises and less liquidity may be available to withdraw. Repayment or new supply can lower utilization. Aave says reserve rates update as liquidity changes; its documentation describes utilization as one determinant of those rates (Aave interest-rate strategy).
Rate curves translate utilization into interest rates
A lending protocol’s interest-rate model determines how utilization affects rates. Aave v3 documents an optimal utilization point, or kink: above it, borrowing rates rise more steeply. Suppliers receive a share of borrower interest after the reserve factor is applied (Aave interest-rate strategy).
Morpho markets can use different interest-rate models, including an adaptive curve. Morpho documents the relationship supplyAPY = borrowAPY × utilization × (1 − fee) for its model context; it is not a universal formula for every lending protocol (Morpho interest-rate models, Morpho markets).
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Market settings and incentives can also change
Rate curves and related parameters may differ by market and can be changed through protocol governance. Check the specific reserve or market on the relevant chain rather than assuming that two tokens—or the same token on different chains—use identical settings (Aave interest-rate strategy, Aave risk parameters).
Some markets also offer supply or borrow incentives, including rewards with eligibility conditions. These are additional to the underlying lending interest. Aave documents supply, borrow, and conditional incentives (Aave incentives). Morpho’s data distinguishes native APY from incentive APR and also reports an average net supply APY that includes rewards (Morpho markets).
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Why the same asset can show different yields
A token does not have one universal DeFi lending APY. Different markets can have different utilization, rate models, fees or reserve factors, and incentive programs. Morpho permits different interest-rate models across markets, while Aave documents reserve-specific rate and risk parameters (Morpho markets, Morpho interest-rate models, Aave interest-rate strategy, Aave risk parameters).
A displayed APY is a rate snapshot, not a promise that the same rate will apply for a full year. Incentive estimates may also differ from the value you receive: the reward token’s market price can change before you claim or sell it.
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How to track your actual net return
Keep a record for each position. Use the same reporting currency when valuing returns and costs, and state whether your figures are denominated in the supplied token or converted to another currency.
- Identify the position. Record the chain, protocol, exact market or reserve, supplied asset, and entry time.
- Track the balance over time. At each observation and at exit, record the actual position balance or accrued amount. Do not apply one APY snapshot to the entire holding period.
- Separate interest from incentives. Record base lending interest independently from each reward: token, amount accrued, eligibility conditions, and value when claimed or sold.
- Log every cost. Include transaction costs for entering, claiming rewards, rebalancing, and exiting. Convert them to the same currency as your return calculation.
- Account for liquidity and debt risk. Note liquidity available for withdrawal. If you borrow or use supplied assets as collateral, also track health factor and liquidation threshold (Aave risk parameters).
- Report the result for the actual holding period. Show realized base interest, realized incentives, transaction and exit costs, and the resulting net amount and net percentage. State your token denomination and any conversion assumptions.
This ledger-based approach is a practical way to compare what happened to your position; the cited protocols do not prescribe one universal net-return formula.
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How to compare lending markets
Compare markets for the same asset over the same time basis. A reward-inclusive headline rate can obscure differences in base interest, liquidity, or risk, so check these dimensions separately:
- Base supply rate and reward-inclusive rate.
- Utilization and the rate curve or its parameters.
- Protocol fee or reserve factor.
- Reward token, program duration, amount, and eligibility.
- Available liquidity and potential withdrawal constraints.
- Collateral requirements, health factor, and liquidation exposure if the strategy involves borrowing or collateral.
- Chain and transaction costs for your intended position size and holding period.
These are documented comparison factors, not a live ranking of markets. Rate levels, incentive programs, market parameters, and liquidity can change; verify the exact chain and market before acting.
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- LARGE FORMAT LEDGER WITH PLENTY OF WRITING SPACE: This accounting book ledger comes in a large format, measures 10 by 7 inches, and has 129 pages with 3,100 entry lines total.
- TRACK ACTIVITY IN MULTIPLE ACCOUNTS WITH JUST ONE BOOK: This accounting log book will be perfect if you want to track activity in multiple accounts. To do so, use the dedicated column to add the bank account number every time you make a record.
- PREMIUM DESIGN FOR COMFORTABLE DAILY USE: This accounting journal book has a durable eco-leather hardcover, thick 120gsm paper, sturdy elastic closure, pen loop, ribbon bookmark, and back pocket for extra notes, checks, and receipts.
- 60-DAY MONEY-BACK GUARANTEE: We will exchange or refund your small business log book if you aren’t satisfied with your business bookkeeping ledger for any reason. Reach out to us via message to refund your monthly accounting ledger book.
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