The New Landscape of DeFi Stablecoin Yield Ecosystem

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

Institutional Adoption of DeFi: A Quietly Rising Trend

Even though the nominal DeFi yields of assets like stablecoins have adjusted compared 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, rather than merely the pursuit of the absolute highest annualized yield, and this advantage is now further strengthened by continuously improving risk management tools. These platforms are not just yield platforms; they are evolving into modular financial networks and rapidly achieving institutionalization.

As of June 2025, the Total Value Locked (TVL) in major collateralized lending platforms exceeds $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 enduring appeal lies in unique advantages: a global market available around the clock, composable smart contracts that support automated strategies, and higher capital efficiency.

The Rise of Crypto-Native Asset Management Firms: 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 sector has grown from around $1 billion to over $4 billion. These management firms are deeply engaged 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 of major asset management firms' custody has approached $2 billion. By introducing specialized capital allocation frameworks 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 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 occupies 15.4%.

Regulatory Attitude Shift: As DeFi infrastructure matures, institutional attitudes are gradually shifting to view DeFi as a configurable supplementary financial layer rather than a disruptive, unregulated domain. Permissioned markets built on Euler, Morpho, and Aave reflect the active efforts made to meet institutional needs. These developments enable institutions to engage in on-chain markets while satisfying internal and external compliance requirements (, particularly regarding KYC, AML, and counterparty risk ).

DeFi Infrastructure: The Foundation of Stablecoin Yields

Today, the most significant progress in the DeFi field is concentrated on infrastructure construction. From tokenized RWA markets to modular lending protocols, a brand 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 ( such as USDC, USDT, and DAI ) to borrowers, who provide other crypto assets ( like ETH or BTC ) as collateral, usually using an over-collateralization method. Lenders earn interest paid by borrowers, thereby laying the foundation for stablecoin income.

• Aave, Compound, and Sky Protocol have launched pool lending and dynamic interest rate models. Maker has launched DAI, while Aave and Compound have built scalable currency markets.
• Recently, Morpho and Euler have transitioned 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 is 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 (, 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.

• 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 surged from $4 billion in early 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.

3. Tokenization strategy ( includes delta-neutral and yield stablecoins ): this category encompasses more complex on-chain strategies, typically paying yields 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-generating stablecoins: Some protocols are innovating stablecoins with native yield mechanisms. For example, a certain protocol's stablecoin generates yield through "cash and arbitrage" trading, which means 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-generating stablecoins have exceeded 8%.

4. Yield Trading Market: Yield trading introduces a novel primitive that separates future yield streams 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, making on-chain markets align 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 certain protocol is a leading protocol in the field, allowing users to tokenize 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, mainly composed of yield-bearing stablecoins.

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

Composability: Stacking and Amplifying Stablecoin Yields

The "currency Lego" feature of DeFi is reflected through its composability, where the aforementioned primitives used to generate stablecoin yields become the foundation for constructing more complex strategies and products. This compositional approach enhances returns, diversifies risk ( or concentrates ), as well as customizes financial solutions, all revolving around stablecoin capital.

Lending market for yield-bearing assets: Tokenized RWA or tokenized strategy tokens can serve as collateral in the new lending market. This enables:

• Holders of these yield-bearing assets can use them as collateral to borrow stablecoins, thereby releasing liquidity.
• A lending market 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.

Integrating diversified sources of returns into stablecoin strategies: Although the ultimate goal is usually stablecoin-dominated returns, the strategies to achieve this goal can incorporate other areas of DeFi, producing stablecoin yields through prudent management. Delta-neutral strategies involving lending non-USD tokens ( such as liquid staking tokens LST or liquidity re-staking tokens LRT ) can be constructed to generate returns denominated in stablecoins.

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 deposit again. Each round of "looping" increases exposure to the underlying stablecoin yield while also amplifying risks, including the risk of liquidation 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 together with other stablecoins ( such as USDC-USDT pools ), earning returns through trading fees, thus generating yields for stablecoins.
• The LP tokens obtained from providing liquidity can themselves be staked in other protocols, such as staking Curve's LP tokens in the Convex protocol, or used as collateral for other vaults, thereby further increasing returns and ultimately enhancing the yield on 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 yield sources, such as collateralized lending markets or RWA protocols. Then, they:

• The automatic execution of harvesting rewards ( rewards may exist in another token form during the process of ).
• Exchange these rewards back to the initially deposited stablecoin ( or other desired stablecoins ).
• By reinvesting these rewards, you can automatically compound your earnings, significantly increasing your annual yield compared to manual withdrawals and reinvestments (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.

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, reduce friction ( such as no-fee 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 that not only drives initial adoption but also promotes the sustained "stickiness" of capital within 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 those of newer, riskier options. This behavior reflects a risk-averse sentiment, driven 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.

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 may be slightly higher—this is similar to traditional financial models, where convenience, familiarity, and trust often outweigh minor differences in returns. This is particularly evident on certain platforms, where, despite yields dropping to historical lows, the number of holders remains relatively stable, indicating that the yields themselves are not the primary driver of user retention.

Despite the risk characteristic of stablecoins being "zero yield".