Tiger Research: Ten-thousand-word analysis of DeFi yield decline, what real value does RWA have?

Null Key Points

This report is authored by Tiger Research. The USDC deposit rate on Aave V3 is currently 2.7%, below the 4.3% yield of the 10-year U.S. Treasury bond. The short-term gains driven by speculation in DeFi are fading.

The market has not disappeared. Although overall yields are declining, real-world assets (RWA) and stablecoins have grown into a multi-trillion-dollar track, and the industry is entering a new development phase.

The collapse of projects like Compound, Curve, and Olympus reveals a profound lesson: relying on token mutual backing models, once external incremental capital stops flowing, the system can collapse instantly.

Past DeFi was like a power strip without an external power source; RWA is now connecting this circuit to a real external value grid.

The industry is maturing: using RWA as a value anchor, while gradually establishing collaborative governance and responsibility constraints. Industry initiatives like DeFi United exemplify this trend.

1. Yield Decline, Market Growth

Decentralized Finance (DeFi) is no longer a high-yield product.

Since 2022, the yield spread between DeFi returns and government bonds has narrowed to near zero, with some periods even experiencing inverted yields. As of April 2026, the USDC deposit rate on Aave V3 is about 2.7%, below the US federal funds rate (3.5%) and the 10-year U.S. Treasury yield (4.3%).

In the past, users had clear risk-reward logic.

Back then, on-chain yields far exceeded bank deposits, with unmatched advantages. But now, the situation has reversed. After accounting for on-chain risks like hacking and stablecoin de-pegging, if DeFi’s actual returns are lower than traditional financial products, retail investors’ motivation to participate actively in DeFi will significantly weaken.

However, the entire industry continues to develop in a new direction. While native DeFi yields decline, the market for real-world assets (RWA) and stablecoins is deeply integrating with traditional finance, reaching trillions of dollars in scale. Institutional capital inflows are the core driver of this shift.

But institutions often overlook DeFi’s developmental history and native community ecosystem, blindly copying traditional finance rules and paradigms. Before large-scale institutional entry, DeFi was a token-incentive-driven market. Many protocols relied on incentive mechanisms to build market awareness, reshaping the industry’s operational logic. This model still profoundly influences DeFi today. The leading protocol born during DeFi summer, Aave, now serves as a benchmark for industry-wide interest rates.

For new institutional participants, understanding the core market players who have persisted through cycles is essential before entering. This article will review key protocols that have shaped the industry narrative throughout DeFi’s development cycle and summarize lessons learned.

2. DeFi History: From Experiment, Collapse to Rebuilding

DeFi initially was not built solely on token incentive promises. The starting point was simple: can we, on the blockchain, without intermediaries, independently complete asset lending, exchange, and collateralization?

Early industry efforts were more like financial experiments. The core value was in the model itself: peer-to-peer lending without banks, asset exchanges without centralized exchanges, and any user holding collateral assets could provide liquidity. But after 2020, market sentiment shifted rapidly, and token incentives became the main method to attract capital. A flood of protocols and innovative ideas emerged, but only a few projects survived the cycle. The industry learned lessons and continuously adjusted its development direction through narrative shifts.

Compound integrated its native token $COMP into its yield incentive system to attract liquidity at scale. But as similar projects copied this approach, new capital inflow dried up, exposing the structural fragility of this model.

Curve turned governance voting into a battleground for reward distribution among liquidity pools, turning yield competition into a contest for protocol control. The market realized that DeFi governance could also be a tool for power and incentive monopolies.

OlympusDAO is an extreme example. It aimed to demonstrate that DeFi could operate without external capital and control liquidity independently, offering extremely high annualized yields. But most of its returns were not from real cash flows but from token issuance and new deposits to sustain the system. When inflows slowed, the OHM token price collapsed by over 90%, shattering confidence in the protocol.

These three projects collectively sounded an alarm: if the core source of yield is protocol-native tokens, this business model cannot be sustained long-term. This history has reshaped perceptions among users, developers, and institutional capital about DeFi.

It was after this bubble burst that a new track emerged: EigenLayer, Pendle, YBS, and RWA.

2.1. Compound: A Bubble Built on Token Distribution

In June 2020, Compound began distributing governance tokens, rewarding both depositors and borrowers. During certain periods, COMP rewards even exceeded borrowing costs, creating a strange phenomenon where borrowing could be profitable.

This initiated a new industry paradigm. As users flooded in, Ethereum transaction fees soared, with single transactions costing tens of dollars. Depositing and borrowing no longer remained simple financial activities; they became tools for yield farming, with capital rapidly flowing between protocols chasing high returns.

This period is known as the “DeFi Summer.” Projects like Uniswap, Aave, and Yearn Finance rose rapidly, establishing on-chain finance as a standalone sector. But the core of Compound’s model was to attract capital through token incentives, which then pushed up token prices in a positive feedback loop. Today, DeFi users are highly sensitive to yields, liquidity, and reward mechanisms—habits formed during this phase.

2.2. Curve and veCRV: The Beginning of the Curve Wars

Initially, Curve was just a stablecoin exchange platform, but the introduction of veCRV changed its fundamental logic. Users locking CRV for longer periods earned more veCRV; veCRV represented voting power, which determined reward distribution among pools.

From then on, the core of industry competition shifted from yield levels to control over reward allocation. Large veCRV holders could steer more rewards to their preferred pools. Protocols began hoarding veCRV, engaging in fierce battles—marking the start of the Curve Wars.

Initially, this mechanism attracted retail and project participants: longer lockups meant higher yields for users; projects could reduce circulating supply and direct liquidity to targeted pools. As a result, lock-based governance models like Balancer’s veBAL and Frax’s veFXS quickly spread within the ecosystem.

Over time, governance power shifted away from ordinary users. Protocols like Convex aggregated and locked CRV on behalf of users, offering higher yields and consolidating voting power. The Curve Wars escalated, with the main battlefield moving to Convex.

veCRV proved a key insight: control over yield distribution is more attractive than yield itself. Users delegated governance rights to efficient intermediaries like Convex. Curve also revealed that governance rights could become yield-bearing assets, prone to centralization and monopoly.

2.3. OlympusDAO: The Golden Age Built on Game Theory

Even after veToken mechanisms emerged on Curve, liquidity remained a major challenge for DeFi’s long-term sustainability. External liquidity, once attracted by higher incentives elsewhere, would quickly withdraw—these funds were mainly profit-seeking speculative capital.

OlympusDAO, launched in late 2021, was seen as a potential solution. Its core design included three elements: protocol-owned liquidity (POL), where the protocol directly held its liquidity; a (3,3) game theory model, advocating all users stake and lock assets for optimal outcomes; and initial yields exceeding 200,000% annualized.

But this model was unsustainable. OHM’s high yields depended heavily on token issuance rather than real cash flows. Its bond mechanism led to many clone projects, and OHM’s price plummeted over 90%. This event shifted the mindset of developers and users: before chasing “how high yields can go,” they began scrutinizing the true sources of returns.

2.4. EigenLayer and Pendle: From Horizontal Yield Mining to Vertical Leverage

The collapse changed retail behavior: in 2020–2022, the approach was simple—mine incentives, then cash out. Users spread funds across multiple protocols, engaging in horizontal arbitrage—rapid capital movement seeking higher yields.

Post-2022, this approach proved less effective. Token incentives became unsustainable, and airdrop competition intensified. Merely diversifying deposits across platforms yielded diminishing returns. The market shifted toward multi-layered yield stacking on single assets: staking ETH (stETH) for re-staking, reinvesting liquidity derivatives (LRT) into DeFi, splitting ownership of yields to capture points and future returns.

EigenLayer and Pendle exemplify this transition. From 2024, EigenLayer introduced re-staking, allowing staked ETH and liquid staking tokens (LST) to earn extra rewards. Within six months, total value locked (TVL) surged from under $400 million to $18.8 billion, confirming that capital is shifting from simple deposits to re-staking.

Pendle splits yield-bearing assets into principal tokens (PT) and yield tokens (YT). PT represents near-principal value; YT captures all interest, mining rewards, and points during its lifetime. YT’s value drops to zero at maturity, but holding it maximizes points and yield capture. Even without understanding the underlying mechanics, buying YT has become a mainstream leverage mining strategy based on time and capital.

The industry’s strategy shifts from widespread capital deployment and protocol diversification to focusing on single assets with multi-layered yield compounding.

3. Business Model Rebuilding: RWA and YBS

In the past, projects heavily relied on token incentives to boost TVL. Higher TVL seemed to indicate expansion, and token prices rose accordingly. But the core flaw persisted: external liquidity is fleeting and difficult to accumulate.

Today, TVL remains an important metric, but the industry’s focus has shifted to fee revenue, real-world asset backing, and compliance capabilities. The key variable is institutional capital inflow. Institutions scrutinize yield sources and the quality of underlying collateral assets. New products are iterating to meet both retail and institutional compliance needs.

3.1. Real-World Assets (RWA): Institutional Mass Entry

Since 2024, traditional financial giants like BlackRock, Franklin D. Roosevelt, and JPMorgan have entered the on-chain market via RWAs. Their approach involves tokenizing off-chain assets such as U.S. Treasuries, money market funds, private credit, gold, and real estate, then issuing tokens on blockchain.

The RWA market has grown from tens of millions in 2022 to hundreds of billions by April 2026. Tokenized government bonds and private credit are the main growth drivers.

Leading institutional products include BlackRock’s BUIDL and Franklin D. Roosevelt’s BENJI. Both involve similar underlying assets but differ in operation: BUIDL targets institutional investors strictly, while BENJI has a minimum entry of $20 and is open to retail investors.

Other asset managers like Apollo, Hamilton Lane, and KKR are partnering with platforms like Securitize to accelerate tokenization of private funds and private credit.

For traditional institutions, the on-chain market is a new distribution channel, not an unknown. Protocols serving institutional clients are building compliant KYC/AML systems, custody infrastructure, legal jurisdiction adaptation, and risk management frameworks.

3.2. Yield-Bearing Stablecoins (YBS): Dollar Assets with Built-in Returns

The most promising niche today is yield-bearing stablecoins (YBS). These stablecoins embed yield mechanisms directly into the token. Examples include Ondo USDY, Sky sUSDS, Ethena sUSDe, and the aforementioned BUIDL and BENJI.

Holding these assets automatically accrues yields generated by underlying assets like U.S. Treasuries, funding rates, staking interest, and money market funds. The architecture is essentially a blockchain version of traditional money market funds (MMFs).

According to StableWatch’s cumulative yield output (YPO), Ethena sUSDe, Sky sUSDS, BUIDL, and Sky sDAI rank among the top in total paid interest. Data varies slightly across sources, but it’s clear: yield-bearing stablecoins have moved beyond experimental stages into a mature sector capable of consistently paying real interest.

However, simply migrating money market funds onto blockchain does not create a significant competitive advantage. The real barrier is composability: BUIDL holds 90% of its USD reserves in USDtb, which can be used as collateral in Aave’s lending ecosystem.

In other words, traditional financial products like money market funds have become foundational components of on-chain finance. DeFi is no longer relying solely on internal “built-in batteries” to operate; it is now integrating external real value energy.

4. Building the RWA Value Grid: Learning from Past Failures

Previously, DeFi was like a daisy chain of nested power strips, claiming to be a growth flywheel.

Layer after layer of leverage and derivatives, all self-contained. The fatal flaw: energy comes from outside the system, and most yields are artificially created by protocol token incentives. Compound relied on native tokens to back loans; Curve used its own tokens to retain liquidity providers.

On the surface, these are mutual blood transfusions, but in reality, the entire system shares a limited pool of resources. When shocks occur, the underlying value collapses first, propagating upward, causing derivatives to fail. This self-reinforcing, self-backed model has inherent capacity limits.

RWA introduces real external value into this system. Cash flows from bonds, real estate rents, and trade receivables become stable power sources for on-chain finance. Interest rates are no longer manipulated by internal token incentives but are set by external market supply and demand, macro rates, and credit risk.

When stable cash flows are sustained, financial modules like issuance, custody, collateralization, lending, and settlement can connect to this grid layer by layer. Many complex financial products that struggled in traditional DeFi now become feasible with RWA infrastructure. The core question shifts from endlessly stacking layers to how to access long-term, stable value currents.

This is the essence of on-chain RWA: bringing real, underlying assets onto the chain, leveraging their cash flows as a foundation, and layering various financial services. If old DeFi relied on token incentives as a temporary battery for liquidity, the new RWA track depends on assets’ intrinsic cash flows for sustainable liquidity.

Leading players in the current space are building this new financial grid from different angles:

Theo: selects underlying assets suitable for on-chain, determining which real-world assets to connect as energy sources.

Plume: develops infrastructure for asset issuance and circulation, laying transmission lines and dispatch hubs to ensure smooth value flow.

Morpho: uses circulating real-world assets as collateral to build lending and collateral markets, becoming the first financial endpoints to consume and utilize this value.

No single entity can dominate the entire grid. The complete on-chain RWA system requires connecting energy sources, transmission networks, and application endpoints into a closed loop.

4.1. Theo: Reconstructing User Base Strategy

Theo exemplifies how starting from asset selection can reshape its client base and fully transform.

Initially, Theo’s flagship was a strategic treasury. But as market dynamics shifted, retail and institutional needs diverged. Theo proactively adapted, reorienting its target audience.

Its current core product is thBILL: a tokenized US short-term Treasury portfolio issued by a compliant issuer, providing steady returns. The roadmap now includes thGOLD (tokenized gold), and a yield-bearing stablecoin thUSD, collateralized by thGOLD, is about to launch.

This transformation is more than product iteration; it shows that projects originating from retail incentive tracks can completely reconfigure their underlying architecture to meet institutional compliance and business needs.

4.2. Plume: Building the RWA Landing Infrastructure

Plume is another example, integrating asset circulation infrastructure with market demand.

For institutions, simply tokenizing assets is not enough; they need comprehensive issuance, compliance, distribution, and yield product infrastructure. For on-chain investors, investing in institutional assets like bonds and funds requires supporting product systems.

Nest, built on Plume’s infrastructure, offers yield protocols where users deposit stablecoins to earn yields from real-world assets like bonds and private credit. Its products include nBASIS, nTBILL, and nWisdom, each backed by different real-world assets; tokens are freely transferable within DeFi.

WisdomTree has issued 14 tokenized funds via Plume; Apollo manages $50 million in credit strategies; Invesco has migrated $6.3 billion in senior loans onto Plume. Nest is a key portal for retail access to institutional assets.

Beyond its own ecosystem, Plume provides a comprehensive infrastructure for standardized distribution between institutional assets and on-chain capital needs.

4.3. Morpho: Enabling Complete Financial Functions for Institutional Assets

Morpho demonstrates how assets can be transformed into collateral, lending tools, and liquidity sources.

For institutions, simply registering assets on-chain is just the start. The key is whether these assets can serve as collateral to unlock liquidity. Lending terms and risk parameters must be clear, and all operations must be compliant and custodial.

A typical example is Apollo’s ACRED product. Apollo deploys credit strategies on Plume and allows ACRED to be used as collateral in Morpho, enabling holders to borrow stablecoins while maintaining fund positions. ACRED is a tokenized private credit fund issued via Securitize, based on Apollo’s diversified credit securitization.

Only when assets can serve as collateral, support lending, and release liquidity do they truly become usable on-chain financial raw materials.

5. The Fading Dopamine Frenzy: What Remains?

Looking back, DeFi’s golden age resembled a mirage built on token incentives and leverage stacking.

Despite some voices dismissing DeFi’s recovery prospects due to hacks and security issues, recent events like the Kelp DAO rsETH incident and the formation of DeFi United show a different trend. As of April 28, 2026, Aave and DeFi United have raised over $300 million, far exceeding the $190 million lost in hacks.

This indicates that the industry is gradually building trust infrastructure, with a more mature collective accountability mechanism emerging.

Historically, DeFi was an unregulated chaos, where users aimed solely for high yields, and projects designed high-yield schemes often exited after raising funds.

Now, the industry is shifting toward proactive institutional accountability: formal systems for risk management, responsibility, and transparency are being integrated into protocols. While a fully mature financial system is still evolving, the consensus is clear: acknowledging common risks, sharing losses reasonably, and clarifying responsibilities.

Many bearish views stem not only from frequent security breaches but also from the disappearance of short-term high yields and the lack of new narratives and growth catalysts.

The broad concept of “DeFi” is weakening. The market is fragmenting into more precise vertical tracks: lending, stablecoins, RWAs, re-staking, on-chain credit, etc.

Concept names are less important now. Early DeFi experiments are maturing into sustainable foundational architectures, enabling assets to enter the real economy and generate tangible value.