DeFi has evolved significantly since Ethereum's launch, creating numerous yield generation methods. Let's explore this evolution and GammaSwap's new Yield Token.

Between 2017 and 2019, DEXs like Balancer and Uniswap emerged and gained popularity with their liquidity provision mechanisms. While traditional finance favored order book-based DEXs, and some early DEX developments followed this model, they proved incompatible with Ethereum's transaction costs and processing speed, failing to solve liquidity issues. This led to the birth of AMM-type DEXs where users could deposit token pairs into pools for constant swap availability, earning yields through LP positions. However, this model revealed several challenges: high Ethereum transaction costs, capital inefficiency due to liquidity spread across all price ranges, and impermanent loss risk.

During 2018-2020, lending protocols like Compound and Aave emerged and flourished. Users could simply deposit single tokens to earn interest paid by borrowers. When Compound implemented COMP token distribution based on lending and borrowing volumes, it triggered a circular leverage phenomenon where users repeatedly cycled through lending and borrowing, creating a bubble that pushed interest rates higher. DeFi lending faced challenges such as capital inefficiency due to over-collateralization and limited borrowing demand compared to traditional finance.

Around 2019-2020, Perpetual DEXs like dYdX emerged. The presence of funding rates enabled delta-neutral strategies to earn FR without CEX involvement. However, challenges persisted: high Ethereum gas fees and increased transaction costs due to low perp DEX liquidity. Simultaneously, "Ethereum killers" - high-speed, low-cost L1 chains, particularly Solana, gained prominence, significantly lowering DeFi operational barriers. Until this period, while DeFi operations generally excelled in decentralization, they struggled with capital efficiency.

Spring 2021 saw the launch of Uniswap v3, allowing users to select their liquidity provision ranges. While this enabled improved capital efficiency, the complexity of setting and managing liquidity ranges proved too challenging for most DeFi users. Combined with rebalancing overhead, TVL growth remained modest despite improved capital efficiency.

Summer 2021 marked the mainnet launches of Ethereum L2s Arbitrum and Optimism, further reducing DeFi usage barriers. GMX launched on Arbitrum, offering users yield through its liquidity pool (GLP) as counterparty to traders. This model assumed long-term trader P/L would be negative, benefiting GLP holders. While attracting significant TVL with high yields, its zero-slippage feature exposed vulnerabilities leading to exploits. Traders appreciated immediate execution without slippage regardless of position size, but violating the financial principle that "liquidity has a cost" led to exploits. Learning from this, GMX v2 restored user trust through position size caps and slippage-simulating fees. Synthetix shared similar philosophy, where SNX stakers earned yield as counterparties to synthetic asset traders.

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Perpetual Futures and Liquidity

In 2022, TerraUSD amassed significant TVL by promising 20% APY for staking UST. However, the underlying logic supporting UST and LUNA proved fundamentally flawed, leading to UST's major depeg in May 2022, triggering a prolonged crypto market winter.

Following the Terra shock and U.S. interest rate hikes, the crypto market saw major activity decline, making it difficult to generate yield through lending, delta-neutral strategies, AMM LP, or Perp LP positions. This environment increased the relative attractiveness of earning 5% from U.S. Treasury bonds, leading to multiple well-funded launches of Treasury tokenization projects like Ondo Finance and Backed Finance. While these offered nearly guaranteed real-world yields (backed by law), they provided zero censorship resistance.

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