How does USDG yield work?

The USDG yield Arrow tracks comes from lending. Deposits go into a vault curated by Steakhouse Financial that spreads them across Morpho lending markets, where borrowers post collateral worth more than they borrow.

Base yield

Borrowers pay interest on what they borrow. That interest, minus fees, flows to depositors — it's real revenue and shows up as the vault's share price slowly rising. Arrow measures it directly from the chain.

Incentive yield

On top of that, ecosystem programs distribute reward tokens (via Merkl) to attract deposits. This part is a marketing budget, not lending revenue: it can shrink or end at any time. Arrow always shows what fraction of the total APY depends on it.

The risks

Smart-contract bugs in the vault or markets; borrower collateral crashing faster than liquidations can keep up; incentives ending. Withdrawals can also queue when most deposits are lent out. Not a bank deposit, not insured.