The yield landscape of DeFi stablecoins is undergoing profound changes

The DeFi stablecoin yield ecosystem is undergoing a profound transformation. A more mature, resilient ecosystem that aligns better with institutions is taking shape, marking a significant shift in the nature of on-chain yields. This article analyzes the key trends shaping on-chain stablecoin yields, covering institutional adoption, infrastructure development, user behavior evolution, and the rise of yield stacking strategies.

The momentum of institutional adoption of DeFi is increasing

Although the DeFi yields of assets such as stablecoins have been relatively adjusted down compared to traditional markets, institutional interest in on-chain infrastructure continues to grow steadily. Protocols like Aave, Morpho, and Euler are attracting attention and use. This participation is driven more by the unique advantages of composable and transparent financial infrastructure rather than solely pursuing the highest yields, and these advantages are further enhanced through continuously improving risk management tools. 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 for USDC is between 4% and 9%, overall higher than the approximately 4.3% level of 3-month U.S. Treasury bonds during the same period. Institutional capital is still exploring and integrating these Decentralized Finance protocols. Its enduring appeal lies in its unique advantages: a round-the-clock global market, composable smart contracts that support automated strategies, and higher capital efficiency.

The Rise of Crypto Native Asset Management Companies

A new type of "crypto-native" asset management firm is emerging, such as Re7, Gauntlet, and Steakhouse Financial. Since January 2025, the on-chain capital base in this field has grown from about $1 billion to over $4 billion. These management firms are deeply engaged in the on-chain ecosystem, deploying funds into various investment opportunities, including advanced stablecoin strategies. In the Morpho protocol alone, the custody TVL of major asset management firms is nearing $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 firms.

The competitive landscape among the management institutions of these native cryptocurrencies has begun to emerge. Gauntlet and Steakhouse Financial control approximately 31% and 27% of the custody TVL market, respectively, while Re7 holds nearly 23% of the share, and MEV Capital occupies 15.4%.

Regulatory attitude shift

As DeFi infrastructure matures, institutional attitudes are gradually shifting towards viewing DeFi as a configurable complementary financial layer rather than a disruptive and unregulated domain. Permissioned markets built on Euler, Morpho, and Aave reflect the proactive efforts made 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 Basis of Stablecoin Yield

The most significant advancements in the current DeFi space are focused on infrastructure development. From tokenized RWA markets to modular lending protocols, a whole new DeFi stack is emerging 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 ( such as ETH or BTC ) as collateral, usually using an over-collateralization method. Lenders earn interest paid by borrowers, thereby laying the foundation for stablecoin earnings.

• Aave, Compound, and Sky Protocol( launched pool lending and dynamic interest rate models originally from MakerDAO). Maker introduced DAI, while Aave and Compound built scalable money markets.

• Recently, Morpho and Euler are transitioning to modular and isolated lending markets. Morpho has launched a fully modular lending primitive that divides the market into configurable vaults, allowing protocols or asset managers to define their own parameters. Euler v2 supports isolated lending pairs and comes 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 (, particularly 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 DeFi protocols.

• By tokenizing U.S. Treasury bonds through certain platforms, traditional fixed income is transformed into programmable on-chain components. On-chain U.S. Treasury bonds have surged from $4 billion at the beginning of 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 Strategy

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

• Yield-generating stablecoins: Some protocols are innovating stablecoins with native yield mechanisms. For example, the stablecoin of a certain protocol generates yield through "cash and arbitrage" trading, meaning shorting ETH perpetual contracts while holding spot ETH, where funding rates and staking yields provide returns to stakers. In recent months, the yields of some yield-generating stablecoins have exceeded 8%.

4. Yield Trading Market

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

• A certain protocol is a leading protocol in the field, allowing users to tokenize yield assets into principal tokens (PT) and yield tokens (YT). PT holders obtain fixed returns by purchasing discounted principal, while YT holders speculate on variable returns. As of June 2025, the protocol's TVL exceeds $4 billion, primarily composed of yield-generating stablecoins and others.

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

Composability: Stack and Amplify Stablecoin Returns

The "currency Lego" feature of DeFi is manifested through composability, with the aforementioned primitives used to generate stablecoin yields serving as the foundation for constructing more complex strategies and products. This composability can enhance yields, diversify risks ( or concentrate ) and customize financial solutions, all revolving around stablecoin capital.

lending market for yield assets

Tokenized RWA or tokenized strategy tokens can become collateral for new lending markets. This allows for:

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

integrates diversified sources of income into stablecoin strategies.

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

Leverage Profit Strategy

Similar to arbitrage trading in traditional finance, users can deposit stablecoins into lending protocols, borrow other stablecoins against that collateral, 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 yield, while also amplifying risks, including the risk of liquidation when the value of collateral decreases or borrowing rates suddenly spike.

stablecoin liquidity pool ( LP )

• Stablecoins can be deposited into automated market makers like some AMMs, typically deposited alongside other stablecoins ( such as USDC-USDT pools ), earning returns through trading fees, thereby generating returns for stablecoins.
• The LP tokens obtained from providing liquidity can themselves be staked in other protocols or used as collateral for other vaults, thereby further increasing yields and ultimately enhancing the return on initial stablecoin capital.

yield aggregator and automatic compounder

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

• Automatically execute harvesting rewards ( rewards may exist in another token form during the process of ).
• Exchange these rewards back to the original deposited stablecoin ( or other desired stablecoins ).
• By re-depositing these rewards, you can automatically compound your earnings, which can significantly increase the annualized yield (APY) compared to manual withdrawals and reinvestments.

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 driver in the DeFi space, data shows that users' decisions regarding 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 and reduce friction (, such as fee-free trading ), and build trust through reliability and transparency tend to retain users better in the long run. In other words, a better user experience is becoming a key factor not only in driving initial adoption but also in enhancing the "stickiness" of funds within DeFi protocols.

1. Capital prioritizes stability and trust

During periods of market volatility or downturns, capital often shifts towards 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' preferences for stability and trust.

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

Protocol loyalty also plays an important role. Users of mainstream platforms often prefer native ecosystem vaults, even though the interest rates on other platforms may be slightly higher------this is similar to traditional financial models, where convenience, familiarity, and trust often outweigh minor differences in yields. This is more evident in certain protocols, where despite yields dropping to historical lows, the number of holders remains relatively stable, indicating that the yields themselves are not the main driver of user retention.

Despite the storage of stablecoins