The yield landscape of DeFi stablecoins is undergoing profound changes

A more mature, resilient, and institutionally aligned ecosystem is emerging, 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, the evolution of user behavior, and the rise of yield stacking strategies.

Adoption of DeFi by Institutions: A Quietly Rising Trend

Even though the nominal DeFi yields of assets like stablecoins have adjusted relative to traditional markets, institutional interest in on-chain infrastructure is steadily growing. Protocols such as Aave, Morpho, and Euler are attracting attention and usage. This participation is driven more by the unique advantages of composable and transparent financial infrastructure than by a mere pursuit of the absolute highest annual yield, and these advantages are now further reinforced by continuously improving risk management tools. These platforms are not just yield platforms; they are evolving into modular financial networks and are rapidly becoming institutionalized.

By June 2025, the TVL of collateralized lending platforms such as Aave, Spark, and Morpho will exceed $50 billion. On these platforms, the 30-day lending yield of USDC 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 Decentralized Finance protocols. Its lasting 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 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, quietly deploying funds into various investment opportunities, including advanced stablecoin strategies. In the Morpho protocol alone, the total locked value (TVL) of major asset management firms has approached $2 billion. By introducing a specialized capital allocation framework and actively adjusting the risk parameters of DeFi protocols, they are striving to become the next generation of leading asset management companies.

The competitive landscape among the governing bodies of these native cryptocurrencies has begun to take shape, with Gauntlet and Steakhouse Financial controlling approximately 31% and 27% of the custodial TVL market, respectively, while Re7 holds nearly 23% and MEV Capital accounts for 15.4%.

( Regulatory attitude shift

As DeFi infrastructure matures, institutional attitudes are gradually shifting towards viewing DeFi as a configurable supplementary financial layer, rather than a disruptive and unregulated field. The 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, particularly around KYC, AML, and counterparty risk.

DeFi Infrastructure: The Foundation of Stablecoin Yield

The most significant advancements in the DeFi space today are focused on 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, where users lend stablecoins (such as USDC, USDT, DAI) to borrowers, who provide other crypto assets (like ETH or BTC) as collateral, usually in an over-collateralized manner. Lenders earn interest paid by the borrowers, thus laying the foundation for stablecoin earnings.

• Aave, Compound, and MakerDAO (now renamed as Sky Protocol) launched liquidity pool lending and dynamic interest rate models. 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 fully modular lending primitives that divide 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.

![On-chain Earnings Report: DeFi is Moving Towards the "Invisible" Era, Institutional Entry Trend Accelerates]###https://img-cdn.gateio.im/webp-social/moments-c8aadc67b2be5a017c6917c3e3fde4a6.webp###

( 2. Tokenization of RWA

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

• 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 new audiences to Decentralized Finance.

![On-chain Earnings Report: DeFi is entering the "Invisible" Era, and the Trend of Institutional Involvement is Accelerating])https://img-cdn.gateio.im/webp-social/moments-fa1797e7d50ae7422216a7da126c50ff.webp###

( 3. Tokenization Strategy

This category encompasses more complex on-chain strategies, typically paying 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: Some protocols are innovating stablecoins with native yield mechanisms. For example, the stablecoin of a certain protocol generates returns through "cash and arbitrage" trading, which involves shorting ETH perpetual contracts while holding spot ETH, with funding rates and staking rewards providing returns to stakers. In recent months, the yields of some yield-bearing stablecoins have 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. This development adds depth to financial instruments in Decentralized Finance, aligning on-chain markets more closely 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.

• A leading protocol allows users to tokenize their yield-bearing assets into principal tokens ###PT### and yield tokens (YT). PT holders obtain fixed income by purchasing discounted principal, while YT holders speculate on variable income. As of June 2025, the protocol's TVL exceeds $4 billion, primarily composed of some yield-bearing stablecoins.

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: Stacking and Amplifying Stablecoin Returns

The "currency Lego" feature of DeFi is reflected through its composability, and the aforementioned primitives used to generate stablecoin yields become the cornerstone for building more complex strategies and products. This composability can enhance yields, diversify (or concentrate) risks, and customize financial solutions, all centered around stablecoin capital.

( Lending Market for Yield Assets

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

• Holders of these income-generating assets can use them as collateral to borrow stablecoins, thereby releasing liquidity.
• Create lending markets specifically 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 stablecoin-dominated returns, the strategies to achieve this goal can incorporate other areas of DeFi, yielding stablecoin returns through careful management. Delta-neutral strategies involving the lending of non-USD tokens (such as liquid staked tokens LST or liquid re-staked tokens LRT) can be constructed to generate returns denominated in stablecoin.

Leverage Yield 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's yield while also amplifying risks, including liquidation risks when the value of the collateral decreases or when borrowing rates suddenly spike.

stablecoin liquidity pool ### LP

• Stablecoins can be deposited into protocols like automated market makers (AMM), usually alongside other stablecoins, to earn returns through trading fees, thereby generating yield for the stablecoins.
• The LP tokens obtained from providing liquidity can be staked in other protocols or used as collateral for other vaults, thereby further increasing yields and ultimately improving the return rate of the initial stablecoin capital.

( yield aggregator and auto-compounding tool

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

• The process of automatically executing the harvesting of rewards (which may exist in the form of another token).
• Exchange these rewards back to the original deposited stablecoin (or other desired stablecoin).
• By re-depositing these rewards, you can automatically compound your earnings, which can significantly increase your annual yield compared to manually claiming and reinvesting 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.

![On-chain Earnings Report: DeFi is Moving Towards the "Invisible" Era, Institutional Entry Trends Accelerate])https://img-cdn.gateio.im/webp-social/moments-6b69c51cdb416bb74075c7a8aabe63b3.webp###

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 Annual Percentage Yield (APY). An increasing number of users weigh factors such as reliability, predictability, and overall user experience (UX). Platforms that simplify interactions, reduce friction (such as fee-free transactions), 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 promoting the sustained "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 yield is lower than newer, riskier options. This behavior reflects a risk-averse sentiment, underpinned by users' preference for stability and trust.

Data consistently shows that during periods of market stress, the total locked value (TVL) held by 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.

Loyalty to the protocol also plays an important role. Users of a certain mainstream platform often prefer the native ecosystem treasury, even though the interest rates on other platforms are slightly higher. This is similar to traditional financial models, where convenience, familiarity, and trust often outweigh minor differences in returns. This is even more evident in a certain protocol, where despite the yield dropping to a historic low, holders