Before starting the content of this article, let's first look at the following story (or reality).
An "endless" tariff list was published. Subsequently, the market collapsed, and Altcoins crashed.
Your original low-risk "mining" yield dropped from 30% to near Treasury bill levels.
This is unacceptable to you. Originally planning to retire with $300,000, earning $90,000 annually from "mining". Therefore, the yield must be high.
So you begin to explore down the risk curve, chasing an imagined yield level, as if the market would favor you.
You replace blue-chip projects with unknown new projects; increase yields by deploying assets into higher-risk new fixed-term protocols or AMMs. You start to feel secretly pleased.
A few weeks later, you begin to question why you were so risk-averse. This clearly seems like a "safe and reliable" way to make money.
Then, the surprise came.
The highly liquid base trading project with custody, leverage, and L2 packaging, to which you entrusted your life savings, has collapsed, and now your PT-shitUSD-27AUG2025 has lost 70%. You received some governance tokens, and months later, this project was abandoned.
Although this story is exaggerated, it reflects the reality that plays out multiple times when yields are compressed in a bear market. Based on this, this article will attempt to provide a survival manual for yield bear markets.
People struggle to adapt to the new reality, and facing market crashes, they increase risks to compensate for yield gaps while ignoring the potential costs of these decisions.
Market-neutral investors are also speculators, whose advantage lies in finding unadjusted interest rates. Unlike directional traders, these speculators face only two outcomes: either earning a little each day or losing a large sum at once.
In my opinion, the market-neutral rate in the crypto market becomes severely distorted during the upward process, providing alpha above its true risk, but the opposite occurs during the downward process, offering returns below the risk-free rate (RFR) while bearing significant risks.
Clearly, sometimes risk-taking is necessary, and sometimes risk avoidance is crucial. Those who cannot see this will become someone else's "Thanksgiving dinner".
For example, at the time of writing, AAVE's USDC yield is 2.7%, and sUSDS yield is 4.5%.
· AAVE USDC bears 60% of RFR while bearing smart contract, oracle, custody, and financial risks.
· Maker bears costs 25 basis points above RFR while bearing smart contract, custody, and risks of actively investing in higher-risk projects.
When analyzing interest rates for market-neutral investments in the DeFi market, you need to consider:
· Custody risk
· Financial risk
· Smart contract risk
· Risk-free rate
You can assign an annual risk percentage to each risk, then add the RFR to derive the "risk-adjusted return" required for each investment opportunity. Anything above this rate is alpha, anything below is not.
Recently calculated the risk-adjusted return required for Maker, arriving at a fair compensation of 9.56%.
Maker's current interest rate is approximately 4.5%.
Both AAVE and Maker hold subordinated capital (about 1% of total deposits), but even with substantial insurance, yields below RFR should not be accepted by depositors.
In the era of Blackroll T-bills and regulated on-chain issuers, this is the consequence of inertia, lost keys, and foolish funds.
So what should be done? It depends on your scale.
If your portfolio is small (less than $5 million), there are still attractive choices. Check the safest protocols across all chain deployments; they usually offer incentives on lesser-known chains with low TVL, or conduct some basic trading on high-yield, low-liquidity perpetual contracts.
If you have substantial funds (over $20 million):
Buy short-term Treasury bills and wait and see. A favorable market environment will eventually return. You can also search for over-the-counter trades; many projects are still seeking TVL and willing to significantly dilute their holders.
If you have LPs, let them know this and even have them exit. On-chain Treasury bills are still below real trading. Don't be blinded by unadjusted risk-reward. Good opportunities are obvious. Keep it simple, avoid greed. You should stay here long-term and manage your risk-reward properly; if not, the market will solve it for you.
Related Reading: Comprehensive Data Analysis of Stablecoin's Trillion-Dollar Growth: Where Did the Money Go When Altcoins Didn't Rise?
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