[berberous]

I’m not really knowledgeable about DeFi, but here’s a simplistic model (would love to be corrected by someone with deep DeFi knowledge):

1. You put $1 of ETH into a new protocol, let’s say a new Decentralized Exchange on Ethereum that is paying a high amount of interest in order to attract liquidity to their protocol. The high interest is perhaps paid in ETH or maybe in a new token for the protocol.

2. Users flock to this new DEX, and actually use it, generating trading fees for the DEX, which drains activity from CEXs like Coinbase. If in step 1, the payment was made with a new token, perhaps that new token either earns a cut of trading fees, or gets governance rights over the DEX.

3. You either earned another $1 of ETH, or of the new token.

In the above example, it’s not a closed system anymore than the US economy is. A new company was created, which created real value by creating a better exchange which attracted users over CEXs. The company has value now it can payout because it generates trading fees and the equity/governance of the company is valuable. It bootstrapped that with protocol incentives.