Common DeFi yield sources
Yields in DeFi (and strategies in Gro Protocol) typically come from three different sources: lending income, trading fees from automated market making, and protocol incentives.

Lending income

Lending platforms, such as Compound, pay users for locking their assets into a smart contract. Borrowers can use these funds, at interests, a portion of which is paid to the lenders. Lending and borrowing is governed by smart contracts and loans are over-collateralized (en lieu of something like a credit score) to minimize risk for the lender. There are mechanisms in place so that if the value of the debt exceeds a certain proportion (e.g. 85%) of the value of the collateral, the collateral automatically gets liquidated to pay off the debt.

Trading fees from automated marketing making

Automatic market makers (AMMs) are liquidity pools that facilitate arbitrage between two or more assets and enable traders to exchange their assets. This activity generates fees which go back to those who have provided the funds.
The price of each asset relative to the other is inversely related to the comparative liquidity. If the liquidity pool contains more of one asset than another, that asset will be cheaper relative to the other. Users can contribute to liquidity and earn interest on their capital through the trading fees fees. Common AMMs include Uniswap and Curve.

Protocol incentives

Some protocols provide incentives for providing liquidity, often in the form of governance tokens or so-called LP tokens. These tokens, in turn, can be locked into yield farms, which reward users with more of the same token or with a different token. There is also often an external market for governance or LP tokens which can be quite profitable. Compound, for example, rewards liquidity providers with its governance token COMP. There are pools for COMP as well as a thriving market.
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