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Value fluctuations in staked tokens or provided liquidity can also undermine yields through impermanent loss. Yield aggregators solve this by pooling funds across many LPs, allowing them to automate compounding at optimal intervals. Instead of claiming rewards yourself every day or week, the smart contracts handle harvesting and reinvesting to maximize APY. Protocols no longer need to issue large amounts of incentive tokens to attract liquidity. Second, as more capital entered DeFi, the yield opportunities were spread thinner across a larger pool of investors. Third, market downturns in 2022 and 2023 reduced the profitability of yield strategies tied to token prices.

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