Yield Token vs Liquidity Provider: A Personal DeFi Investment Journal

Yield Token vs Liquidity Provider: A Personal DeFi Investment Journal

I’ve recently reached a turning point in my journey through decentralized finance (DeFi): deciding where to allocate my investment. Should I choose Yield Tokens (YT) or become a Liquidity Provider (LP)? This post is a reflection of my own experience, not financial advice—so as always, Do Your Own Research (DYOR).

Understanding the Basics: YT vs LP in Simple Terms

Let’s break this down in simple language.

🪙 Yield Token (YT): High Risk, High Potential

Imagine Yield Token (YT) as investing in a company or project. You’re essentially burning your capital to provide liquidity. Yes, your funds can be burned—up to 100%—depending on the product or strategy you choose.

In return, you receive a token that represents potential future gains. If the project performs well or demand increases, the value of that token may grow—offering you upside when the tokens unlock or mature.

So, YT is speculative. It’s like saying, “I believe in this, and I’m willing to risk my capital in exchange for potential growth.”

💧 Liquidity Provider (LP): Balanced Risk with Ongoing Rewards

Becoming a Liquidity Provider (LP) is more like providing funds to support a business’s daily operations. You supply liquidity into a trading pair or pool—your funds aren’t burned, and you start earning rewards immediately.

LP is generally safer than YT, but not risk-free. Impermanent loss, market fluctuations, and token volatility can affect your holdings. However, as long as price movement stays within a reasonable range, your assets remain mostly stable, and you’re compensated with trading fees or protocol incentives.

So, Which One Should You Choose?

It really comes down to your investment profile.

If you're aiming for high returns, be prepared to take on higher risk. Yield Tokens (YT) can be highly profitable—especially if the project has strong fundamentals and long-term potential. In the best-case scenario, your capital could grow by hundreds of percent.

But there's a catch: if you invest in a project without clear utility or credibility, there's a good chance you could lose everything.

There’s a phrase I always keep in mind:

“If you don’t know where the yield comes from, you are the yield.”

On the other hand, providing liquidity (LP)—especially in stablecoin pairs—tends to be much safer. Many LP products offer annual percentage yields (APY) that outperform traditional banks, making them a solid choice for more conservative investors seeking steady income.

What Did I Choose?

As for me, I decided to go with Yield Tokens (YT)—at least for now. Of course, I did my own research first to carefully choose which project to invest in.

I’m not sharing the specific project here, since this post isn’t meant to be financial advice. But if you're curious, you can find the details on my X page @AskaraJr **and Linkedin **