The DeFi Yield Optimizer Comparison puts up to five strategies side by side and ranks them by the yield you actually keep — after compounding, protocol fees, impermanent loss and tax. Headline APYs flatter the noisiest strategies; this tool levels the field.
How it works
For each strategy the tool first converts the quoted rate into a compounded APY:
APY = (1 + APR / n)^n - 1where n is the number of compounding periods per year. It then subtracts
protocol fees and expected impermanent loss from the gross yield, and applies
your tax rate to the remaining profit:
Net profit = capital × (gross yield − fees − IL) × (1 − tax)Strategies are ranked by net annual profit, so the winner is the one that puts the most money in your pocket, not the one with the biggest banner number.
Understanding each adjustment
Compounding frequency
When a protocol quotes APR and auto-compounds, the effective APY is higher. The difference grows with the rate: a 10% APR compounded daily becomes 10.52% APY (a small difference), while a 100% APR compounded daily becomes about 171% APY (a large one). Higher-yield, frequently-compounding vault strategies benefit most from setting this accurately.
Impermanent loss
Impermanent loss (IL) applies only to liquidity pool strategies where you provide two tokens. When the price ratio between them changes, the pool rebalances, and you end up with more of the falling token and less of the rising one compared to simply holding. For stablecoin pairs IL is negligible (both prices are stable). For volatile pairs (e.g. ETH/USDC), a 50% price move by one asset creates roughly 5.7% IL; a 2× move creates about 5.7%, and a 4× move creates about 20%. Set this to zero for lending, staking, or single-asset strategies.
Protocol fees
Vaults typically charge a performance fee on yield (commonly 10–20%) and sometimes a withdrawal or management fee. Direct lending protocols on Aave or Compound do not charge these fees. Enter the specific protocol’s disclosed fee rate for each strategy.
Tax rate
Applies to the net profit (after fees and IL) only. DeFi yield events are taxable in most jurisdictions — frequently as income rather than capital gains — so excluding tax dramatically overstates your actual return.
Worked comparison
Suppose you are comparing two strategies with $10,000 of capital:
Strategy A — simple lending at 8% APY:
- No IL, no protocol fee, 20% capital gains tax
- Net profit: $10,000 × 8% × (1 − 0.20) = $640/year
Strategy B — LP strategy advertised at 40% APR, compounded daily:
- Daily compounding: APY = (1 + 0.40/365)^365 − 1 ≈ 49.2%
- Protocol performance fee: 15%
- Expected IL for this volatile pair: 12%
- Tax: 20%
- Gross yield after fees and IL: 49.2% − 15% − 12% = 22.2%
- Net profit: $10,000 × 22.2% × 0.80 = $1,776/year
Strategy B wins in this example — but only because the post-adjustment yield still exceeds Strategy A after significant haircuts. If IL were 20% instead of 12%, the net would fall to $1,136, still ahead but closer. Stress-testing the IL assumption is the single most important step when evaluating LP strategies.
Tips for accurate inputs
- Get the APR vs APY right. Many protocols show APY on their UI already. If so, set compounding frequency to 1 (no additional compounding) to avoid double-counting.
- Use mid-range IL estimates. IL is only “permanent” if you exit when the price ratio is different. If you expect to hold through volatility and prices tend to revert, actual realized IL may be lower than the theoretical figure.
- Include entry and exit costs. Gas fees, swap fees on entry, and withdrawal fees reduce your effective return and are not captured in the APR/APY figure.
- Re-run as rates change. DeFi yields are variable. A strategy that wins today may lose its edge next week as lending demand or token emissions change.