# Step 15: Define Token Yield

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**Mandatory**
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This step involves selecting the type of yield the token generates. The chosen yield type reflects the token’s financial structure and its appeal to investors. Yield definitions are added as metadata in the token’s smart contract to ensure transparency and alignment with investor expectations.

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## Yield Types&#x20;

1. **Fixed Yield**
   1. Provides token holders with a predetermined, guaranteed rate of return (e.g., 5% annual yield).
   2. Importance:
      1. Attracts conservative investors seeking predictable returns.
      2. Simplifies financial planning for both issuers and investors.
      3. Often associated with debt instruments or structured income-sharing tokens.
2. **Target Yield**
   1. Sets a target rate of return, which is not guaranteed but aims to achieve a specific performance level.
   2. Importance:
      1. Appeals to investors looking for a balance between risk and return.
      2. Provides flexibility for issuers, as the return is performance-dependent.
      3. Suitable for tokens tied to revenue, profit-sharing, or variable financial outcomes.
3. **No Yield (Growth-Oriented)**
   1. Tokens do not generate a regular yield but are designed for capital appreciation over time.
   2. Importance:
      1. Focuses on asset growth, making it suitable for equity-like tokens or growth-stage projects.
      2. Attracts long-term investors aiming to benefit from price appreciation.
      3. Eliminates the need for periodic payouts, simplifying cash flow management for issuers.
4. **Hybrid Yield (Fixed + Target Yield)**
   1. Combines fixed yield (guaranteed return) with a target yield (performance-based return).
   2. Importance:
      1. Offers a balance between stability and performance incentives.
      2. Appeals to a broader investor base by catering to both conservative and growth-focused preferences.
      3. Works well for tokens linked to mixed asset classes or diversified financial strategies.
5. **No Yield Projections (Future Estimation)**
   1. No immediate yield is generated, but future projections indicate potential income streams based on asset growth or business development.
   2. Importance:
      1. Suitable for early-stage projects or assets with long-term growth potential.
      2. Provides flexibility for issuers to delay payouts until financial maturity.
      3. Encourages speculative or growth-focused investment behavior.
6. **Dynamic (DeFi)**
   1. The yield is variable and determined by decentralized finance (DeFi) mechanisms, such as liquidity pools or staking rewards.
   2. Importance:
      1. Appeals to tech-savvy investors seeking high returns through DeFi strategies.
      2. Allows for market-driven yield rates, making it adaptable to market conditions.
      3. Enhances token utility within DeFi ecosystems, encouraging participation in liquidity provision or staking programs.

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## Why Metadata for Yield Types Is Important

1. **Transparency**
   1. Embedding the yield type as metadata ensures investors have a clear understanding of the token’s financial structure.
   2. Prevents disputes or misunderstandings about returns.
2. **Investor Segmentation**
   1. Clear yield definitions help target the right investor audience, whether they are risk-averse, growth-focused, or seeking DeFi opportunities.
3. **Regulatory Clarity**
   1. Clearly defined yields help meet issuer's disclosure obligations, especially for security tokens.
   2. Facilitates audits and reporting by specifying the financial obligations of the token.
4. **Automation**
   1. Yield mechanisms, such as fixed payouts or performance-based calculations, can be automated via smart contracts.
   2. Simplifies distribution and reduces administrative overhead.
5. **Flexibility for Issuers**
   1. Allows token issuers to tailor financial structures to their business models and growth strategies.
   2. Provides options to attract diverse investor groups.

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## Integration with Smart Contracts

* **Metadata.** The selected yield type is embedded in the token’s smart contract, ensuring immutability and transparency.
* **Automation.** For yield types requiring payouts (e.g., Fixed or Hybrid), smart contracts may enforce automated and secure distributions.
* **Dynamic DeFi Yields.** Integrated with DeFi protocols for market-driven yield generation.

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