Tom Dunleavy: Proper risk assessment in DeFi requires disaggregating risk premia, inflated yields mislead investors, and curators play a key role in managing collateral markets
Crypto Briefing
Last updated: May 3, 2026
This article analyzes the true risk-adjusted yields in Decentralized Finance (DeFi), suggesting they should be around 12.5%, a figure significantly lower than current lending rates. This analysis is framed against the backdrop of substantial financial losses due to exploits in the DeFi space.
- DeFi protocols are currently offering yields that do not adequately reflect the inherent risks involved, leading to a potential mispricing of risk. The author proposes that a more accurate risk-adjusted yield for DeFi should approximate 12.5%. This figure is derived from analyzing various risk premia associated with DeFi lending.
- The article highlights that the total value locked (TVL) in DeFi has seen significant growth, but this has been accompanied by substantial exploits, amounting to $606 million. These exploits underscore the need for more robust risk assessment models within the ecosystem.
- A critical component of proper risk assessment in DeFi involves dissecting risk premia into distinct categories, such as credit risk, smart contract risk, and liquidity risk. By accurately quantifying each of these components, investors and protocols can arrive at a more realistic yield expectation.
- The current high lending rates are deemed unsustainable and potentially misleading, as they do not fully account for the likelihood and impact of security breaches and protocol failures. The proposed 12.5% risk-adjusted yield offers a benchmark for more prudent DeFi operations and investment strategies.
