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

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 waning.
• The market has not disappeared. Although overall yields are declining, real-world assets (RWA) and stablecoins have grown into a multi-hundred-billion-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-based mutual support models, once external capital inflows dry up, the system can collapse instantly.
• Past DeFi was like a power strip without an external power source; RWA is 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 mechanisms. 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 spreads between DeFi and government bonds have 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 took on risks with clear reward logic.

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

However, the entire industry continues to develop in a new direction. While native DeFi yields keep declining, Real-World Assets (RWA) and stablecoin markets are deeply integrating with traditional finance, reaching scales of hundreds of billions of dollars. Institutional capital inflows are the core driver of this shift.

But institutions often overlook DeFi’s developmental history and native community ecology, simply copying traditional finance rules and paradigms. Before large-scale institutional entry, DeFi was a market driven by token incentives. Many protocols relied on incentive mechanisms to build market awareness and reshape 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’s core narrative throughout DeFi’s development cycle, and summarize lessons learned from the market.

2. DeFi’s History: From Experiment, Collapse to Rebuilding

DeFi was not initially built on token incentive promises. Its starting point was simple: can we, on the blockchain, without intermediaries, independently lend, exchange, and collateralize assets?

Early on, the industry was more like a financial experiment. The core value was in the model itself: lending without banks, asset exchanges without centralized exchanges, and any user holding collateral assets could provide liquidity independently. 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 adjusted its development direction through repeated narrative shifts.

Compound integrated its native token $COMP into its yield incentive system, massively attracting liquidity. But as similar projects copied this approach, new capital inflows dried up, exposing the structural fragility of this model.

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

OlympusDAO is an extreme case. It aimed to prove 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 over 90%, shattering market confidence.

These three projects sounded alarm bells: if the core source of yield is the protocol’s native token, this business model cannot be sustained. This history has reshaped perceptions among ordinary 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: The Bubble Built on Token Distributions

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. Deposits and loans no longer remained simple financial operations but became tools for yield farming, with capital rapidly flowing between protocols chasing high returns.

This period is known as “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’s behaviors—high sensitivity to yields, liquidity, and reward mechanisms—were gradually solidified during this phase.

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

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

From then on, the core of industry competition shifted from yield levels to control over reward distribution. Holders of large veCRV could steer more rewards toward their own pools. Protocols began hoarding veCRV, engaging in fierce battles—the so-called Curve Wars.

At first, 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.

But over time, governance power shifted away from ordinary users. Protocols like Convex started aggregating and locking CRV on behalf of users, offering higher yields to concentrate voting power. The Curve Wars escalated, with the main battleground moving to Convex.

veCRV proved a key insight: control over yield distribution is more attractive than yield itself. Users no longer held governance directly but delegated it to efficient intermediaries like Convex. Curve also demonstrated 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 the introduction of veToken mechanisms on Curve, liquidity remained a long-term challenge for DeFi. External liquidity, once attracted by higher incentives elsewhere, would quickly withdraw. Such capital was mainly profit-seeking and speculative.

OlympusDAO, born in late 2021, was seen as a solution to this problem. Its core design included three elements: protocol-owned liquidity (POL), where the protocol directly held its liquidity; the (3,3) game theory model, advocating that all users stake and lock assets to achieve global optimality; and initially offering an ultra-high annualized yield of over 200,000%.

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

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

The collapse fundamentally changed retail behavior. From 2020 to 2022, the playbook was simple: mine incentives first, then cash out. Users spread funds across multiple protocols, engaging in horizontal arbitrage: capital moved quickly between protocols chasing higher APYs.

After 2022, this approach became less effective. Token incentives proved unsustainable, and airdrop competitions intensified. Merely spreading deposits across platforms led to diminishing returns. The market shifted focus to multi-layered yields on a single asset: staking ETH (stETH) for re-staking, reinvesting liquidity tokens (LRT) into DeFi, splitting yield ownership to capture points and future returns.

EigenLayer and Pendle became key players in this transformation. Starting in 2024, EigenLayer introduced re-staking, allowing staked ETH and liquid staking tokens (LST) to earn additional rewards. Within about six months, total value locked (TVL) surged from under $400 million to $18.8 billion, clearly showing that capital was shifting from simple deposits to re-staking.

Pendle split 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 during holding, it maximizes points and yield capture. Even without deep understanding, buying YT became a mainstream yield farming strategy leveraging time and capital.

The industry’s strategy shifted from scattering funds across many protocols to focusing on single assets with multi-layered yield compounding.

3. Rebuilding Profit Models: RWA and YBS

In the past, projects heavily relied on token incentives to boost TVL. Higher TVL seemed to indicate growth, and token prices rose accordingly. But the core flaw was always that external liquidity was fleeting and hard to sustain.

Today, TVL remains an important metric, but the industry’s focus has shifted to: fee revenue, backing by real assets, and compliance capabilities. The key variable is institutional capital inflow. Institutions scrutinize yield sources and the true 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 Templeton, and J.P. Morgan have entered the on-chain market via Real-World Assets (RWA). Their approach involves tokenizing off-chain assets such as U.S. Treasuries, money market funds, private credit, gold, and real estate, then issuing these tokens on blockchain.

The RWA market on-chain has grown from a few billion dollars in 2022 to hundreds of billions by April 2026. Tokenized Treasuries and private credit are the main growth drivers.

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

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

For traditional institutions, the on-chain market is not unfamiliar but a new distribution channel. Protocols serving institutional clients are improving: 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 notable niche today is yield-bearing stablecoins (YBS). These are stablecoins with embedded yield mechanisms. Examples include Ondo USDY, Sky sUSDS, Ethena sUSDe, and the previously mentioned BUIDL and BENJI.

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

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

However, simply porting money market funds onto blockchain does not create a core competitive advantage. The real barrier is composability. For example, BUIDL holds 90% of its USD reserves in Ethena’s USDt collateral, which can be used as collateral in Aave.

In other words, what was once a real-world asset tool has become a foundational component of on-chain finance’s stability layer. DeFi is no longer relying on limited “built-in batteries” to operate; it is connecting to external real value energy.

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

Previously, DeFi was always about building a layered, self-nested power strip circuit, claiming it as a growth flywheel.

Leverage and derivatives stacked layer upon layer, all in a closed loop. The fatal flaw: energy comes from the future external sources, 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, all parties seemed to supply and circulate value, but in reality, the entire system shared a limited common battery. When shocks hit, the underlying value first collapsed, transmitting upward, causing derivatives at the end to stall and fail. This self-enclosed, self-backed model has a natural capacity limit.

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

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

This is the essence of on-chain RWA: bringing real assets with intrinsic value on-chain, using their ongoing cash flows as a base, and layering various financial services. If old DeFi relied on token incentives as a temporary battery for liquidity, the current 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: selecting on-chain eligible underlying assets, deciding which real assets to connect as energy sources.
• Plume: constructing the foundational infrastructure for asset issuance and circulation, laying transmission lines and dispatch hubs to ensure smooth value flow.
• Morpho: using circulating real assets as collateral to build lending and collateral markets, becoming the first financial endpoints to consume and utilize this value.

No single entity can monopolize the entire grid. The complete on-chain RWA system requires the integration of energy sources—transmission network— and application endpoints to form a closed loop.

4.1. Theo: Case of Strategic Rebuilding of User Base

Theo exemplifies a case: starting from selecting underlying assets, it has thoroughly reshaped its customer base and undergone a full transformation.

Initially, Theo’s flagship product was a strategic treasury. But as market dynamics shifted, retail and institutional needs diverged sharply. Theo proactively responded by repositioning its target audience.

The current core product is thBILL, a tokenized U.S. short-term Treasury portfolio issued by a compliant issuer, forming the core underlying asset of the Theo ecosystem, generating steady returns. The roadmap now includes thGOLD (tokenized gold), and a yield-bearing stablecoin thUSD, issued against thGOLD, is about to launch.

This transformation is not just product iteration but a proof: projects that originated in retail incentive tracks can fully reconstruct their underlying architecture to meet institutional compliance and business needs.

4.2. Plume: Building the Infrastructure for RWA Implementation

Plume is another typical example, integrating asset circulation infrastructure with upper-layer market needs.

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

Nest, built on Plume’s infrastructure, is a yield protocol. Users deposit stablecoins to earn yields generated by institutional RWA. Its products include nBASIS, nTBILL, nWisdom, each backed by different real assets; these tokens can be freely transferred and circulated within DeFi.

WisdomTree has issued 14 tokenized funds on Plume; Apollo Global Management has launched a $50 million credit strategy; Invesco has migrated a $6.3 billion senior loan strategy onto Plume. Nest becomes a key portal for retail access to institutional assets.

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

4.3. Morpho: Enabling Complete Financial Functionality for Institutional Assets

Morpho exemplifies how to turn assets 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 and generate liquidity. Lending terms and risk parameters must be clear, and all operations must comply with custody and legal frameworks.

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 retaining their fund positions. ACRED is a tokenized private credit fund based on Apollo’s diversified securitized credit funds, issued on-chain via Securitize.

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

5. The Post-Excitement Phase: What Remains in the Industry

Looking back, the golden age of DeFi was more like a mirage built on token incentives and leverage stacking.

Despite some voices pessimistic about DeFi’s recovery, citing hacking incidents as evidence, recent developments tell a different story. The aftermath of the Kelp DAO rsETH incident and the founding of DeFi United show industry resilience. As of April 28, 2026, Aave and DeFi United have raised over $300 million, far exceeding the $190 million lost in the recent hack.

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

Reviewing DeFi’s history, early stages were chaotic and unaccountable. Users aimed solely at quickly capturing high-yield tokens; projects designed high-yield schemes often exited after raising funds.

Now, the industry is shifting decisively: systemic accountability is being embedded into system design. While a complete mature financial system is not yet in place, a consensus has formed: to face common risks, share losses reasonably, and clarify responsibilities.

Many who are bearish cite frequent security breaches, but the root cause is the disappearance of short-term high yields and the lack of new narratives and growth catalysts.

The broad concept of “DeFi” is gradually 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 innovations are maturing into sustainable foundational architectures, enabling more assets to enter the real economy and generate tangible value.