The Profound Transformation of DeFi Stablecoin Yield Landscape

The DeFi stablecoin yield ecosystem is undergoing significant changes, showing more mature, resilient, and institutional characteristics. This shift marks a clear transformation in the nature of on-chain yields. This article will analyze the key trends shaping on-chain stablecoin yields, including institutional adoption, infrastructure development, user behavior evolution, and the rise of yield stacking strategies.

The Quiet Adoption of DeFi by Institutions

Although the nominal yields of DeFi assets such as stablecoins have adjusted relative to traditional markets, institutional interest in on-chain infrastructure continues to grow steadily. Protocols like Aave, Morpho, and Euler are attracting attention and usage. Institutional participation is more driven by the unique advantages of composable, transparent financial infrastructure rather than merely chasing the highest annualized returns. These platforms are evolving into modular financial networks and are rapidly becoming institutionalized.

As of June 2025, the total locked value (( TVL) of collateralized lending platforms such as Aave, Spark, and Morpho exceeds $50 billion. The 30-day lending yield of USDC on these platforms ranges from 4% to 9%, generally at or above the yield level of approximately 4.3% for 3-month U.S. Treasury bonds during the same period. Institutional capital is still exploring and integrating these DeFi protocols. Their enduring appeal lies in unique advantages such as a global market available around the clock, composable smart contracts that support automated strategies, and higher capital efficiency.

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) The rise of crypto native asset management companies

A new class of "crypto-native" asset management companies is emerging, such as Re7, Gauntlet, and Steakhouse Financial. Since January 2025, the on-chain capital base in this sector 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 total locked value of major asset management firms' custody has approached $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 between the management institutions of these native cryptocurrencies has begun to take shape, with Gauntlet and Steakhouse Financial controlling approximately 31% and 27% of the custody TVL market, respectively, while Re7 holds nearly 23% and MEV Capital occupies 15.4%.

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) Regulatory attitude shift

As the infrastructure of Decentralized Finance matures, institutional attitudes are gradually shifting to view DeFi as a configurable supplementary financial layer rather than a disruptive and unregulated domain. The permissioned markets built on Euler, Morpho, and Aave reflect proactive efforts to meet institutional needs. These developments enable institutions to participate in on-chain markets while satisfying internal and external compliance requirements (, especially concerning KYC, AML, and counterparty risk ).

Decentralized Finance Infrastructure: The Cornerstone of Stablecoin Yields

Today, the most significant advancements in the 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. 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, thus laying the foundation for stablecoin yields.

• Aave, Compound, and MakerDAO ) are now renamed to Sky Protocol (, which has launched a liquidity pool lending and dynamic interest rate model. Maker has launched DAI, while Aave and Compound have built scalable currency markets.
• Recently, Morpho and Euler have transitioned to a modular and isolated lending market. Morpho has launched a fully modular lending primitive, dividing the market into configurable vaults, allowing protocols or asset managers to define their own parameters. Euler v2 supports isolated lending pairs and is equipped with advanced risk tools, showing significant momentum since the protocol's restart in 2024.

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) 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 Decentralized Finance protocols.

• Tokenizing U.S. Treasury bonds through platforms like Securitize, Ondo Finance, and Franklin Templeton, transforming traditional fixed income into programmable on-chain components. On-chain U.S. Treasury bonds surged from $4 billion at the beginning of 2025 to over $7 billion by June 2025. As tokenized treasury bond products are adopted and integrated into the ecosystem, these products bring a new audience to Decentralized Finance.

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) 3. Tokenization Strategy

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

• Yield-bearing stablecoins: Ethena( sUSDe), Level### slvlUSD(, Falcon Finance) sUSDf( and Resolv) stUSR( are protocols innovating native yield mechanisms for stablecoins. For example, Ethena's sUSDe generates yield through "cash and arbitrage" trading, which involves shorting ETH perpetual contracts while holding spot ETH, with funding rates and staking yields providing returns for stakers. In recent months, some yield-bearing stablecoins have yielded rates exceeding 8%.

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) 4. Revenue Trading Market

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

• Pendle is the leading protocol in the field, allowing users to tokenize yield-bearing assets into principal tokens (PT) and yield tokens ###YT(. PT holders earn fixed returns by purchasing discounted principal, while YT holders speculate on variable returns. As of June 2025, Pendle's TVL exceeded $4 billion, primarily composed of yield-bearing stablecoins such as Ethena sUSDe.

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

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Composability: Stacking and Amplifying Stablecoin Returns

The "money Lego" characteristic of DeFi is manifested through its combinability, and the primitives used to generate stablecoin yields become the cornerstone for building more complex strategies and products. This combinatorial approach can enhance yields, diversify risks ) or concentrate ( as well as customized financial solutions, all of which revolve around stablecoin capital.

) Lending Market for Yield Assets

Tokenized RWA or tokenized strategy tokens ( such as sUSDe or stUSR) can serve as collateral in new lending markets. This enables:

• Holders of these yield-bearing assets can borrow stablecoins by using these assets as collateral, thereby releasing liquidity.
• A lending market specifically created for these assets, where holders can lend stablecoins to those who wish to borrow against their yield positions, can further generate stablecoin returns.

integrates diversified sources of income into stablecoin strategies.

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

Leverage Yield Strategy

Similar to arbitrage trading in traditional finance, users can deposit stablecoins into lending protocols to borrow other stablecoins against that collateral, exchange the borrowed stablecoins back for the original asset ( or another stablecoin in the strategy ), and then redeposit. Each round of "looping" increases exposure to the underlying stablecoin yields while also amplifying risks, including liquidation risks when the value of the collateral decreases or borrowing rates suddenly spike.

stablecoin liquidity pool ( LP )

• Stablecoins can be deposited into automated market makers like Curve ###AMM(, usually deposited alongside other stablecoins ) such as USDC-USDT pools (, earning returns through trading fees, thereby generating profits for the stablecoins.
• The LP tokens obtained from providing liquidity can be staked in other protocols ), for example, staking Curve's LP tokens in the Convex protocol (, or used as collateral for other vaults, thereby further increasing yields and ultimately improving the return on the initial stablecoin capital.

) yield aggregator and auto-compounding tool

The treasury is a typical example of the composability of stablecoin yield. It deploys the stablecoins deposited by users into underlying yield sources, such as collateralized lending markets or RWA protocols. Then, they:

• The process of automatically executing reward harvesting ( may exist in the form of another token ).
• Exchange these rewards back to the initially deposited stablecoin ### or other desired stablecoin (.
• By re-depositing these rewards, you can automatically earn compound interest, which can significantly increase the annual yield compared to manual collection and reinvestment )APY(.

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.

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User Behavior: Earnings Are Not Everything

Although yield remains an important driving factor 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 transactions (, and build trust through reliability and transparency often retain users better in the long term. In other words, a better user experience is becoming a key factor not only in driving initial adoption but also in promoting the sustained "stickiness" of funds in DeFi protocols.

) 1. Capital prioritizes stability and trust.

During market fluctuations 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' desire for stability and confidence.