The DeFi stablecoin yield ecosystem is undergoing profound changes

The on-chain stablecoin yield landscape is undergoing a significant transformation. A more mature, resilient, and institutionally aligned ecosystem is taking shape, marking a clear shift in the nature of on-chain yields. Key trends include increased institutional adoption, improved infrastructure, evolving user behavior, and the rise of yield stacking strategies.

Institutional Adoption of DeFi: A Quietly Rising Trend

Despite the adjustments in DeFi yields of assets like stablecoins compared to traditional markets, institutional interest in on-chain infrastructure continues to grow steadily. Protocols such as Aave, Morpho, and Euler have attracted more attention and usage. This participation stems more from the unique advantages of composable and transparent financial infrastructure rather than a mere pursuit of the highest yields. These platforms are evolving into modular financial networks and are rapidly achieving institutionalization.

By June 2025, the total value locked (TVL) in major collateral lending platforms will exceed $50 billion. The 30-day lending yield of USDC is between 4% and 9%, overall higher than the approximately 4.3% yield level of 3-month U.S. Treasury bonds during the same period. Institutional capital is still exploring and integrating these DeFi protocols. Its lasting appeal lies in unique advantages: a global market available 24/7, composable smart contracts that support automated strategies, and higher capital efficiency.

The rise of crypto native asset management companies

A new class of “crypto-native” asset management companies is emerging, such as Re7, Gauntlet, and Steakhouse Financial. Since January 2025, the on-chain capital base in this sector has grown from about $1 billion to over $4 billion. These management companies are deeply involved in the on-chain ecosystem, deploying funds into various investment opportunities, including advanced stablecoin strategies. In the Morpho protocol alone, the custodial TVL of major asset management companies has approached $2 billion. By introducing a professional capital allocation framework and actively adjusting the risk parameters of DeFi protocols, they are striving to become the next generation of leading asset management companies.

The competitive landscape among the governing bodies of these native cryptocurrencies has begun to take shape, with Gauntlet and Steakhouse Financial controlling approximately 31% and 27% of the custodial TVL market, respectively, while Re7 holds nearly 23% and MEV Capital accounts for 15.4%.

Regulatory attitude shift

As the infrastructure of Decentralized Finance matures, institutional attitudes are gradually shifting to view DeFi as a configurable supplementary financial layer rather than a disruptive, unregulated domain. The permissioned markets built on Euler, Morpho, and Aave reflect proactive efforts to meet institutional demands. These developments enable institutions to participate in on-chain markets while satisfying internal and external compliance requirements (, especially regarding KYC, AML, and counterparty risk ).

DeFi Infrastructure: The Foundation of Stablecoin Yields

The most significant advancements in the DeFi space today are focused on infrastructure development. From tokenized RWA markets to modular lending protocols, a whole new DeFi stack is emerging - one that can serve fintech companies, custodians, and DAOs.

1. collateralized lending

This is one of the main sources of income, where users lend stablecoins ( such as USDC, USDT, and DAI ) to borrowers, who provide other crypto assets ( like ETH or BTC ) as collateral, typically using an over-collateralization method. Lenders earn interest paid by borrowers, thus laying the foundation for stablecoin yields.

• Aave, Compound, and MakerDAO( are now renamed to Sky Protocol), which has introduced liquidity pool lending and a dynamic interest rate model. Maker launched DAI, while Aave and Compound built scalable currency markets.
• Recently, Morpho and Euler have transitioned towards modular and isolated lending markets. Morpho has launched fully modular lending primitives, dividing the market into configurable vaults that allow protocols or asset managers to define their own parameters. Euler v2 supports isolated lending pairs and is equipped with advanced risk tools, showing significant momentum since the protocol’s restart in 2024.

2. Tokenization of RWA

This involves bringing the yields of traditional off-chain assets (, especially U.S. Treasury bonds ), into the blockchain network in the form of tokenized assets. These tokenized Treasury bonds can be held directly or integrated as collateral into other Decentralized Finance protocols.

• Tokenizing US Treasury bonds through platforms like Securitize, Ondo Finance, and Franklin Templeton, transforming traditional fixed income into programmable on-chain components. On-chain US Treasury bonds have surged from $4 billion in early 2025 to over $7 billion by June 2025. As tokenized bond products are adopted and integrated into the ecosystem, these products bring a new audience to Decentralized Finance.

3. Tokenization strategies ( include Delta neutral and yield stablecoin )

This category encompasses more complex on-chain strategies, which typically pay out returns in the form of stablecoins. These strategies may include arbitrage opportunities, market-making activities, or structured products designed to generate returns on stablecoin capital while maintaining market neutrality.

• Yield-bearing stablecoins: Ethena(sUSDe), Level(slvlUSD), Falcon Finance(sUSDf), and Resolv(stUSR) are protocols innovating stablecoins with native yield mechanisms. For example, Ethena’s sUSDe generates yield through “cash and arbitrage” trading, meaning shorting ETH perpetual contracts while holding spot ETH, with funding rates and staking rewards providing returns to stakers. In recent months, some yield-bearing stablecoins have yielded over 8%.

4. Yield Trading Market

Yield trading introduces a novel primitive that separates future income streams from the principal, allowing floating rate instruments to be broken down into tradable fixed and floating components. This development adds depth to Decentralized Finance financial instruments, aligning on-chain markets more closely with traditional fixed income structures. By turning the income itself into a tradable asset, these systems provide users with greater flexibility to manage interest rate risk and income allocation.

• Pendle is a leading protocol in the field that allows users to tokenize yield-bearing assets into principal tokens (PT) and yield tokens (YT). PT holders receive fixed income by purchasing discounted principal, while YT holders speculate on variable income. As of June 2025, Pendle’s TVL exceeds $4 billion, primarily composed of yield-bearing stablecoins such as Ethena sUSDe.

Overall, these primitives form the foundation of today’s Decentralized Finance infrastructure and serve various use cases for crypto-native users and traditional financial applications.

Composability: Stacking and Amplifying Stablecoin Yields

The “money Lego” characteristic of DeFi is manifested through its combinability, and the primitives used to generate stablecoin yields become the cornerstone for building more complex strategies and products. This combinatory approach can enhance returns, diversify risks ( or concentrate ), as well as provide customized financial solutions, all revolving around stablecoin capital.

Lending Market for Yield Assets

Tokenized RWA or tokenized strategy tokens ( such as sUSDe or stUSR) can serve as collateral in the new lending market. This enables:

• Holders of these income-bearing assets can use them as collateral to borrow stablecoins, thereby releasing liquidity.
• A lending market specifically created for these assets, where holders can lend stablecoins to those who wish to borrow against their yield positions, can further generate stablecoin returns.

integrates diversified sources of income into stablecoin strategies.

Although the ultimate goal is often stablecoin-dominated returns, the strategies to achieve this goal can incorporate other areas of DeFi, generating stablecoin yields through careful management. Delta-neutral strategies involving the lending of non-USD tokens (, such as liquid staking tokens LST or liquidity re-staking tokens LRT ), can be structured to produce yields denominated in stablecoins.

Leveraged Yield Strategy

Similar to arbitrage trading in traditional finance, users can deposit stablecoins into lending protocols, use that collateral to borrow other stablecoins, exchange the borrowed stablecoins back to the original asset ( or another stablecoin in the strategy ), and then redeposit. Each round of “looping” increases exposure to the underlying stablecoin yields, while also amplifying risks, including the risk of liquidation when the collateral value declines or borrowing rates suddenly spike.

stablecoin liquidity pool ( LP )

• Stablecoins can be deposited into automated market makers like Curve ( AMM ), typically alongside other stablecoins ( such as USDC-USDT pools ), earning returns through trading fees, thereby generating profits for the stablecoins.
• The LP tokens obtained from providing liquidity can be staked in other protocols (, for example, staking Curve’s LP tokens in the Convex protocol ), or used as collateral for other vaults, thereby further increasing yields and ultimately improving the return rate on the initial stablecoin capital.

yield aggregator and auto-compounding tool

The vault is a typical example of the composability of stablecoin yields. They deploy the stablecoins deposited by users into underlying yield sources, such as collateral lending markets or RWA protocols. Then, they:

• Automatically execute the harvesting of rewards. The rewards may exist in another token form.
• Exchange these rewards back to the initially deposited stablecoin ( or other desired stablecoin ).
• By re-depositing these rewards, you can automatically compound your earnings, significantly increasing the annual yield compared to manual withdrawal and reinvestment (APY).

The overall trend is to provide users with enhanced and diversified stablecoin returns, managed within established risk parameters, and simplified through smart accounts and a goal-oriented interface.

User Behavior: Earnings Are Not Everything

Although yield remains an important driving factor in the DeFi space, data shows that users’ decisions in capital allocation are not solely driven by the highest annual percentage yield (APY). An increasing number of users weigh factors such as reliability, predictability, and overall user experience (UX). Platforms that simplify interactions, reduce friction (, such as fee-free transactions ), and build trust through reliability and transparency tend to retain users better in the long term. In other words, a better user experience is becoming a key factor not only in driving initial adoption but also in promoting the sustained “stickiness” of capital within DeFi protocols.

( 1. Capital prioritizes stability and trust.

During periods of market volatility or downturns, capital often shifts toward mature “blue-chip” lending protocols and RWA vaults, even if their nominal yields are lower than newer, riskier options. This behavior reflects a risk-averse sentiment, driven by users’ preference for stability and trust.

Data consistently indicates that during market pressure, the total locked value (TVL) retained by mature stablecoin vaults on well-known platforms, at ), is higher than that of newly launched high-yield vaults. This “stickiness” reveals that trust is a key factor in user retention.

The loyalty of the protocol also plays an important role.