The Transformation of DeFi Stablecoin Yield Landscape: Accelerated Institutional Entry and Maturing Infrastructure

The DeFi stablecoin yield space is undergoing a profound transformation. A more mature, resilient, and institutionally aligned ecosystem is forming, marking a significant shift in the nature of on-chain yields. Factors such as institutional adoption, infrastructure development, the evolution of user behavior, and the rise of yield stacking strategies are collectively shaping this new landscape.

Institutional Adoption of DeFi: A Quietly Rising Trend

Despite the nominal DeFi yields of assets such as stablecoins being adjusted, institutional interest in on-chain infrastructure continues to grow steadily. Protocols like Aave, Morpho, and Euler are attracting attention and usage. This participation is more rooted in the unique advantages of composable and transparent financial infrastructure, rather than purely seeking the highest annual yield. These platforms are evolving into modular financial networks and rapidly achieving institutionalization.

By June 2025, the total value locked (TVL) in major collateralized 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% yield 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 global market available around the clock, composable smart contracts that support automated strategies, and higher capital efficiency.

The Rise of Native Asset Management Companies in Cryptocurrency

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 companies 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 managed by major asset management companies is approaching $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% of the share, 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. The 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 ), particularly concerning KYC, AML, and counterparty risk ###.

DeFi Infrastructure: The Foundation of Stablecoin Yields

The most significant advancements in the DeFi space today are focused on infrastructure development. From tokenized RWA markets to modular lending protocols, a 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 in an over-collateralized manner. Lenders earn interest paid by borrowers, thus laying the foundation for stablecoin yields.

• Aave, Compound, and Sky Protocol ( launched pool lending and dynamic interest rate models before MakerDAO ). Maker introduced DAI, while Aave and Compound built scalable currency markets.
• Morpho and Euler are transitioning to modular and isolated lending markets. Morpho has launched fully modular lending primitives that partition 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 reboot 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.

• Tokenizing U.S. Treasury bonds through platforms such as Securitize, Ondo Finance, and Franklin Templeton, transforming traditional fixed income into programmable on-chain components. On-chain U.S. Treasury bonds have significantly increased from $4 billion in early 2025 to over $7 billion in 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

Including Delta-neutral and yield-type stablecoins, this category encompasses more complex on-chain strategies, often paying out 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: Ethena)sUSDe###, Level(slvlUSD), Falcon Finance(sUSDf), and Resolv(stUSR) are protocols innovating stablecoins with native yield mechanisms. 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 to stakers. In recent months, some yield-generating stablecoins have seen yields exceed 8%.

( 4. Earnings 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, aligning on-chain markets more closely with traditional fixed income structures. By transforming the yield itself into a tradable asset, these systems provide users with greater flexibility to manage interest rate risk and yield allocation.

• Pendle is a leading protocol in the field that allows users to tokenize yield-bearing assets into principal tokens )PT### and yield tokens (YT). PT holders earn fixed income by purchasing discounted principal, while YT holders speculate on variable income. As of June 2025, Pendle's TVL exceeds $4 billion, mainly composed of yield-generating stablecoins like 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.

Composability: Stack and Amplify Stablecoin Yields

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

( lending market for yield assets

Tokenized RWA or tokenized strategy tokens ) such as sUSDe or stUSR ### can become collateral in new lending markets. This allows for:

• Holders of these income 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 earnings.

( integrates diversified sources of income into stablecoin strategies.

Although the ultimate goal is often stablecoin-dominated returns, strategies to achieve this goal can incorporate other areas of DeFi, generating stablecoin yields through careful management. Delta-neutral strategies involving lending non-USD tokens ), such as liquid staking tokens LST or liquidity re-staking tokens LRT ###, can be structured to produce yields 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 for 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 liquidation risk 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 certain DEX (AMM), usually alongside other stablecoins ( such as USDC-USDT pools ), earning returns through trading fees, thereby generating profits for stablecoins.
• The LP tokens obtained from providing liquidity can be staked in other protocols (, for example, staking LP tokens from a certain DEX in the Convex protocol ), 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 machine

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 collateral lending markets or RWA protocols. Then, they:

• Automatically execute the harvesting rewards process, which may exist in the form of another token ) rewards ###.
• Exchange these rewards back to the initial deposited stablecoin ( or other desired stablecoins ).
• Re-depositing these rewards will automatically compound the returns, significantly increasing the annual yield compared to manual withdrawals 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.

User Behavior: Earnings are Not Everything

Although yield remains an important driving factor in the DeFi space, data shows that users' decisions on 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 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 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 yields are lower than newer, riskier options. This behavior reflects a risk-averse sentiment, driven by users' preference for stability and trust.

Data consistently shows that during market pressure, the total locked value of mature stablecoin vaults on well-known platforms, represented by )TVL### shares, 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 mainstream platforms like Aave often prefer native ecosystem vaults, even though the interest rates on other platforms may be slightly higher—similar to traditional financial models, where convenience, familiarity, and trust often outweigh minor differences in returns. This is even more evident on Ethena, where despite yields falling to historic lows, the number of holders remains relatively stable, indicating that the returns themselves are not the primary driver of user retention.

Despite the "no yield" risk characteristic of stablecoins, the demand from users remains enormous.