The yield landscape of DeFi stablecoins is undergoing profound changes

On-chain stablecoin yields are undergoing a significant transformation, with a more mature, resilient, and institutionally aligned ecosystem taking shape. This marks a clear shift in the nature of on-chain yields. This article analyzes the key trends shaping on-chain stablecoin yields, covering institutional adoption, infrastructure development, evolving user behavior, and the rise of yield stacking strategies.

Institutional Adoption of DeFi Continues to Grow

Despite adjustments in the nominal DeFi yields of assets such as stablecoins, institutional interest in on-chain infrastructure continues to grow steadily. Protocols like Aave, Morpho, and Euler are attracting attention and usage. This participation is driven more by the unique advantages of composable and transparent financial infrastructure, rather than solely the pursuit of the highest yields, and these advantages are reinforced through continuously improving risk management tools. These platforms are evolving into modular financial networks and are rapidly institutionalizing.

As of June 2025, the total value locked (TVL) in major collateral lending platforms exceeds $50 billion. The 30-day lending yield of USDC ranges between 4% and 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 Decentralized Finance protocols.

Rise of Crypto Native Asset Management Companies

A new class of "crypto-native" asset management firms 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 involved in the on-chain ecosystem, deploying funds into various investment opportunities, including advanced stablecoin strategies. In the Morpho protocol alone, the custodial TVL of major asset management firms has approached $2 billion.

The competitive landscape among 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 accounts for 15.4%.

Regulatory attitude shift

As the infrastructure of Decentralized Finance matures, institutional attitudes are gradually shifting towards viewing DeFi as a configurable supplementary financial layer, rather than a disruptive and unregulated domain. Permissioned markets built on Euler, Morpho, and Aave reflect the active efforts made to meet institutional demands. These developments enable institutions to participate in on-chain markets while satisfying internal and external compliance requirements.

DeFi Infrastructure: The Foundation of Stablecoin Earnings

The most significant advancements in the Decentralized Finance space are concentrated in infrastructure development. From tokenized RWA markets to modular lending protocols, a whole new DeFi stack is emerging, capable of serving fintech companies, custodians, and DAOs.

1. Collateralized Lending

This is one of the main sources of income. Users lend stablecoins to borrowers, who provide other crypto assets as collateral, usually in an over-collateralized manner. Lenders earn interest paid by borrowers, which lays the foundation for stablecoin returns.

• Aave, Compound, and MakerDAO have launched liquidity pool lending and dynamic interest rate models.
• Morpho and Euler are transitioning to modular and isolated lending markets. Morpho has launched fully modular lending primitives, while Euler v2 supports isolated lending pairs.

2. Tokenization of RWA

This involves bringing the yields of traditional off-chain assets (, especially 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.

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 aimed at generating returns on stablecoin capital while maintaining market neutrality.

• Yield-generating stablecoins: Ethena(sUSDe), Level(slvlUSD), Falcon Finance(sUSDf), and Resolv(stUSR) are protocols innovating stablecoins with native yield mechanisms.
• In recent months, the yield of some yield-bearing stablecoins has exceeded 8%.

4. Yield Trading Market

Yield trading introduces a novel primitive that separates future cash flows from the principal, allowing floating-rate instruments to be split into tradable fixed and floating components.

• Pendle is the leading protocol in the field that allows users to tokenize yield-bearing assets into principal tokens (PT) and yield tokens (YT).
• As of June 2025, Pendle's TVL exceeds $4 billion, mainly composed of yield-bearing stablecoins such as Ethena sUSDe.

Composability: Stacking and Amplifying Stablecoin Yields

The "currency Lego" feature of DeFi is reflected through its combinability, and the aforementioned primitives used to generate stablecoin yields become the cornerstone for building more complex strategies and products. This combination approach can enhance yields, diversify risks, and customize financial solutions.

Lending Market for Yield Assets

Tokenized RWA or tokenized strategy tokens can serve as collateral in new lending markets. This enables:

• Holders of these income-generating assets can use them as collateral to borrow stablecoins, thus releasing liquidity.
• Create lending markets specifically for these assets, which can further generate stablecoin yields.

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, by carefully managing to yield stablecoin returns. Delta-neutral strategies involving the lending of non-USD tokens can be constructed to generate returns denominated in stablecoins.

Leveraged Yield Strategy

Users can deposit stablecoins into lending protocols to borrow other stablecoins against that collateral, then exchange the borrowed stablecoins back to the original asset and re-deposit. Each round of "looping" increases exposure to the underlying stablecoin yields while also magnifying the risks.

stablecoin liquidity pool

• Stablecoins can be deposited into automated market makers like Curve (AMM) to earn profits through trading fees.
• The LP tokens obtained from providing liquidity can be staked in other protocols or used as collateral for other vaults, thereby further increasing yields.

yield aggregator and auto-compounder

The vault is a typical example of the composability of stablecoin yields. It deploys the stablecoins deposited by users into underlying yield sources, and then:

• The process of automatically executing reward harvesting.
• Exchange these rewards back to the original deposited stablecoin.
• Re-depositing these rewards will automatically yield compound interest.

User Behavior: Earnings Are Not Everything

Although yield remains an important driver in the DeFi space, data shows that users' decisions regarding fund allocation are not solely driven by the highest annualized yield (APY). An increasing number of users weigh factors such as reliability, predictability, and overall user experience (UX).

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, with users preferring stability and trust.

Protocol loyalty also plays an important role. Users of mainstream platforms like Aave often prefer native ecosystem vaults, even though the interest rates on other platforms might be slightly higher.

2. Improved user experience enhances retention rate

With the maturation of DeFi, simplifying complex operations has become a key driver for improving user retention rates. Products and platforms that can simplify the complexity of underlying technologies are increasingly favored by both new and old users.

The features based on account abstraction ( ERC-43370, such as gasless transactions and one-click recharges, are becoming increasingly popular and help make user interactions smoother and more intuitive.

Cross-chain Yield Gap: How Capital Flows

The yield of similar assets across different blockchain networks can vary significantly. Data shows that capital flows opportunistically between different ecosystems based on these APY gaps, and the infrastructure to automate this migration is rapidly improving.

As of June 2025, the average lending yield of Ethereum hovers around 4.8%, while the yield of Polygon reaches as high as 5.6%.

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) automated routing

Applications and aggregator protocols are increasingly capable of cross-chain fund routing to achieve higher annualized returns with minimal user intervention.

user experience centered around intent

Wallets and dApps are continuously evolving, offering users simple options such as "highest yield" or "best execution." Then, the underlying applications automatically fulfill these user intents, abstracting complexities such as cross-chain routing, asset exchange, and vault selection.

Monetizing DeFi Yields: The Path of Fintech Companies and New Banks

DeFi is increasingly being adopted by native cryptocurrency users as well as fintech companies, wallets, and exchanges, becoming the "invisible" backend infrastructure. By simplifying the complexity of DeFi, these platforms can embed yields directly into the user experience, thereby enhancing retention rates, opening up new monetization avenues, and improving capital efficiency.

1. Stablecoin yield integration

Financial technology companies and centralized platforms are increasingly offering stablecoin yields directly in their applications. This is an effective strategy that can:

• Promote net deposit growth
• Increase asset management scale ### AUM (
• Enhance platform user stickiness and cross-selling potential

Example:

• Coinbase offers USDC deposit yields, enhancing participation and trading volume in its ecosystem.
• PayPal's PYUSD yield product ) offers an annual interest rate of about 3.7%, attracting funds into Venmo and PayPal wallets.
• The integration of Bitget wallet with Aave allows users to earn an annual interest rate of about 5% on USDC and USDT across multiple chains.

( 2. Borrowing with cryptocurrency as collateral

Fintech companies and exchanges now offer non-custodial crypto asset collateralized lending services through embedded DeFi protocols.

Example:

Coinbase's on-chain lending integration with Morpho has issued over $300 million as of June 2025 ).