Yield Basis Mechanism

Definition ∞ A Yield Basis Mechanism is the underlying method or protocol responsible for generating returns or interest on deposited digital assets within decentralized finance. This mechanism defines how yield is accrued, whether through lending protocols, liquidity provision, or staking operations. It forms the core economic engine for passive income generation.
Context ∞ The effectiveness and sustainability of various yield basis mechanisms are frequently debated in crypto news, particularly concerning their annual percentage yields and associated risks. Understanding these mechanisms is crucial for evaluating the stability and security of decentralized finance platforms. Discussions often revolve around the economic models that support these returns and their long-term viability.