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 fading.
• 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 tokens to back each other, 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 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. Declining yields, 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 risks with clear 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, stablecoin de-pegging, and others, if DeFi’s actual returns are lower than traditional financial products, ordinary 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 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 development history and native community ecology, simply 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 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.

2. DeFi history: from experimentation, collapse, to reconstruction

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

Early on, the industry was more like a financial experiment. The core value was in the model itself: lending without banks, asset exchange 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, attracting large 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 battlefield 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 annual yields. But most of its returns were not from real cash flows but from token issuance and new deposits. When inflows slowed, the OHM token price collapsed over 90%, shattering market confidence.

These three projects serve as warnings: if the core source of yield is the protocol’s native token, 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. Deposits and loans no longer were just 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, Yearn Finance rose rapidly, establishing DeFi as a standalone sector. But the core of Compound’s model was relying on token incentives to attract capital, which then pushed up token prices in a positive feedback loop. Today, DeFi users’ behaviors—focused on yields, liquidity, and rewards—were gradually solidified during this phase.

2.2. Curve and veCRV: The beginning of the Curve wars

Curve initially 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 could influence reward distribution among pools.

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

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

But over time, governance power was no longer in the hands of ordinary users. Protocols like Convex aggregated and locked CRV on behalf of users, offering higher yields and consolidating voting power. The Curve wars escalated further, with Convex becoming the main battleground.

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 tokens could become income-generating 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 long-term challenge in DeFi. External liquidity, once attracted by higher incentives elsewhere, would quickly withdraw—these funds were speculative, profit-seeking capital.

OlympusDAO, founded in late 2021, was seen as a solution to this problem. Its core design included: 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 initially offering over 200,000% annual yields.

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

2.4. EigenLayer and Pendle: From horizontal yield farming to vertical leverage

This collapse changed retail behavior dramatically. From 2020 to 2022, the approach 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 efficiency declined sharply. Token incentives proved unsustainable, and airdrop competitions intensified. Merely spreading deposits across platforms yielded diminishing returns. The market shifted focus to multi-layered yields on single assets: staking ETH (stETH) for re-staking, reinvesting liquidity derivatives (LRT) into DeFi, splitting yield ownership to capture points and future returns.

EigenLayer and Pendle became key players in this transition. Starting in 2024, EigenLayer introduced re-staking, allowing staked ETH and liquid staking tokens (LST) to earn additional rewards. Within six months, total value locked (TVL) surged from under $400 million to $18.8 billion, confirming 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 rights; 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 strategy leveraging time and capital.

The industry’s strategy shifted from widespread, protocol-diverse deposits to focused, multi-layered yield stacking and compounding.

3. Business model reconstruction: 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 present: external liquidity comes and goes quickly, making it hard to accumulate.

Now, while TVL remains an important metric, 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 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 adoption

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

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

Leading institutional products include BlackRock’s BUIDL and Franklin Templeton’s BENJI. Both are based on 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 U.S. 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 not unfamiliar but a new distribution channel. Protocols are building compliant KYC/AML systems, custody infrastructure, legal jurisdiction adaptability, and risk management frameworks to serve institutional clients.

3.2. Yield-bearing stablecoins (YBS): Dollar assets with inherent yield

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

However, simply bringing money market funds on-chain does not create a true competitive advantage. The real edge lies in composability. BUIDL holds 90% of its USD reserves in Ethena’s USDt collateral, which can be used as collateral in Aave’s lending ecosystem.

In other words, what were once traditional financial products serving as real-world assets are now foundational components of on-chain finance. DeFi no longer relies on internal “built-in batteries” for operation but is increasingly connected to external real value energy.

4. Building an RWA value grid: Learning from past failures

Previously, DeFi was always about creating a layered, self-nested power strip—what some called a growth flywheel.

Layer after layer of leverage and derivatives, all in a closed loop. The fatal flaw: energy comes from the future, externally, 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 systems circulated value internally, but in reality, they shared a limited resource—an energy “battery.” When shocks hit, the underlying value collapses first, transmitting upward, causing derivatives and the entire system to stall. 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, 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 set by external market supply and demand, macro rates, and credit risk.

When stable cash flows circulate continuously, financial modules like issuance, custody, collateral, 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 stable base, and layering various financial services. If old DeFi relied on token incentives as a temporary battery to sustain liquidity, the new RWA track depends on assets’ intrinsic cash flows for long-term liquidity stability.

Leading players are building this new financial grid from different angles:

• Theo: selecting on-chain eligible assets, determining which real-world assets to connect as energy sources.
• Plume: developing infrastructure for issuance and circulation, laying transmission lines and dispatch hubs to ensure smooth value flow.
• Morpho: using circulating real-world assets as collateral to build lending and collateral markets—these are the first real financial endpoints consuming and utilizing value on this grid.

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

4.1. Theo: A case of strategic restructuring of user groups

Theo exemplifies a case: starting from asset screening, it has completely 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 government bond portfolio issued by a compliant issuer, providing steady returns. The roadmap now includes thGOLD (tokenized gold) and a yield-bearing stablecoin, thUSD, issued against thGOLD.

This transformation is not just product iteration but a proof: projects that originated in retail incentive tracks can completely reconfigure 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 need comprehensive infrastructure covering issuance, compliance, distribution, and yield products. For on-chain users, investing in assets like Treasuries or funds also requires a supporting product ecosystem.

Nest is a yield protocol built on Plume’s infrastructure. Users deposit stablecoins to earn yields generated by institutional RWAs. Its products—nBASIS, nTBILL, nWisdom—are backed by different real-world assets; their tokens can be freely transferred within DeFi.

WisdomTree has issued 14 tokenized funds on Plume; Apollo manages a $50 million credit strategy; Invesco has migrated a $6.3 billion senior loan strategy onto Plume. Nest is a key portal for retail users to access 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 full financial functions for institutional assets

Morpho is a third example, illustrating how assets can be turned 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, 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 dopamine hype fades, what remains in the industry

Looking back, DeFi’s golden age was more like 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 response 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, and a more mature collective accountability mechanism is emerging.

Reviewing DeFi’s history, it’s clear that early on, the sector was chaotic and unaccountable. Users aimed solely at high-yield tokens; projects designed high-yield mechanisms and often exited after raising funds.

Now, the industry is shifting toward: systematic accountability embedded in system design. While a complete, mature financial system is not yet in place, there is a consensus: to face common risks, share losses reasonably, and clarify responsibilities.

Many skeptics cite frequent security breaches and the disappearance of high yields as reasons for pessimism.

But the recent trust-building efforts, such as the response to the rsETH hack and the collective formation of DeFi United, show a different trajectory. The industry is moving toward a more responsible, resilient, and transparent future.

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

Concepts are less important now. Early DeFi experiments are maturing into sustainable infrastructure, enabling assets to flow into the real economy and generate tangible value.