I came across a very interesting report on on-chain lending that made me rethink some things about this segment. You know that lending market that everyone thought was only for leveraged traders? Well, it’s completely changed.

The TVL of on-chain loans has already surpassed US$E0@ billion, representing more than 50% of all DeFi now. It’s no longer peripheral — it has become infrastructure. And who dominates? Aave with about US$32.9 billion in TVL. Seriously, that’s more than 10 times the second place. Aave’s cryptocurrency has become synonymous with decentralized lending.

But what caught my attention the most is how the market is changing its face. It used to be just leverage for crypto natives — you collateralized ETH or BTC, borrowed, and looked for yield somewhere random. Now it’s different. Real assets $64 RWA( have already surpassed US$18.5 billion. U.S. Treasury bonds, tokenized corporate debt — this is becoming the main collateral. Institutional entry is really happening.

The competition is also getting interesting. Morpho started as an optimization layer for Aave and Compound, now it’s becoming an independent protocol with Morpho Blue. Spark Finance is making a splash in the stablecoin segment. But Aave’s cryptocurrency continues to dominate because they keep iterating — V3 with Isolation Mode, now V4 coming with institutional markets and cross-chain liquidations.

There are some serious risks that no one can ignore. Cascading liquidations when the market panics — we saw this in 2020, 2022, and it will happen again. Credit risk when you’re lending to institutions without collateral — Maple Finance learned this the hard way with Orthogonal Trading. And interchain security is a nightmare — cross-chain bridges are the weak link of everything.

But looking ahead, I see three paths worth following. First, the Aave ecosystem itself — it’s not just the token, it’s Morpho, Spark, the innovations of V4. Second, RWA is really starting now, Ondo Finance with OUSG, Maple with institutional credit, Centrifuge with real asset financing. Third, fixed rates — Pendle and Notional are innovating a lot, Pendle grew 10x in 2024.

For those thinking about allocation, I recommend not putting more than 20-30% of your DeFi allocation into lending. Prioritize protocols that have undergone multiple audits and have stable TVL. Smart contract risk is real — Euler lost millions in 2023.

The on-chain lending market has become real infrastructure. It’s not pure speculation; there’s a flow of real interest, institutions are entering. For long-term investors, it’s worth building a position. Aave’s cryptocurrency remains the core play, but the opportunities around it are just starting now.