Definition ∞ A Yield Skimming Mechanism describes a process where a portion of the returns generated from an investment or protocol is systematically diverted or extracted. This extraction can occur at various points within a financial operation, often before the full yield is distributed to primary participants. It typically benefits specific entities or contributes to a designated fund. It represents a predefined allocation of earned returns.
Context ∞ In decentralized finance, yield skimming mechanisms are a subject of scrutiny, particularly concerning the fairness and transparency of various lending, staking, or liquidity provision protocols. News reports often examine how these mechanisms impact the actual returns for individual users and whether they are clearly disclosed within smart contract code. Debates center on balancing protocol sustainability with equitable distribution of profits to participants, affecting trust in DeFi platforms.
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