Decentralized Finance stablecoin yield ecosystem transformation: Institutions get on board to drive infrastructure upgrades

The yield landscape of DeFi stablecoins is undergoing profound changes. A more mature, resilient, and institutionally aligned ecosystem is taking shape, marking a significant transformation 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.

Adoption of DeFi by Institutions: A Quietly Rising Trend

Even though the nominal DeFi yields of assets such as stablecoins have adjusted relative to traditional markets, institutional interest in on-chain infrastructure is steadily growing. 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 the mere pursuit of the highest annualized yield, and these advantages are further strengthened by continually improving risk management tools. These platforms are not only yield platforms but are also evolving into modular financial networks, rapidly achieving institutionalization.

By June 2025, the TVL of collateral 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 DeFi protocols. Their lasting appeal lies in unique advantages: a 24/7 global market, composable smart contracts that support automated strategies, and higher capital efficiency.

The Rise of Native Asset Management Companies in Crypto

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 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 of major asset management firms 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 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 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. 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 meeting internal and external compliance requirements ), especially regarding KYC, AML, and counterparty risk ###.

DeFi Infrastructure: The Foundation of Stablecoin Yield

Today, the most significant advancements in the DeFi realm are focused on infrastructure development. From tokenized RWA markets to modular lending protocols, a new DeFi stack is emerging, capable of servicing fintech companies, custodians, and DAOs.

( 1. Mortgage 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 through over-collateralization. Lenders earn interest paid by borrowers, thereby laying the foundation for stablecoin returns.

• Aave, Compound, and Sky Protocol have launched liquidity pool lending and dynamic interest rate models. Maker has launched DAI, while Aave and Compound have built scalable money markets.
• Recently, Morpho and Euler have transitioned 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 is equipped with advanced risk tools, showing significant growth 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.

• Tokenizing U.S. Treasury bonds through platforms like Securitize, Ondo Finance, and Franklin Templeton transforms traditional fixed income 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 a new audience to Decentralized Finance.

( 3. Tokenization Strategy

Including Delta-neutral and yield stablecoins, this category encompasses more complex on-chain strategies, often 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-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 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, some yield-generating stablecoins have seen yields exceed 8%.

( 4. Profit 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 the financial tools of Decentralized Finance, 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, primarily composed of yield-bearing stablecoins such as Ethena sUSDe.

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 Yields

The "currency Lego" feature of DeFi is reflected through composability, and the primitives used to generate stablecoin yields become the cornerstone for building more complex strategies and products. This compositional approach can enhance yields, diversify risks ( or concentrate ) as well as 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 a new type of lending market. This allows for:

• Holders of these income-generating assets can use them as collateral to borrow stablecoins, thus 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 use their yield positions as collateral for borrowing.

( 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, generating stablecoin yields through careful management. Delta-neutral strategies involving lending non-USD tokens ) such as liquidity-staking tokens LST or liquidity-re-staking tokens LRT ### can be structured to produce 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 to 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 risks when the collateral value decreases or borrowing rates suddenly spike.

( stablecoin liquidity pool ) LP ###

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

( Yield Aggregator and Automatic Compounding Tool

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

• Automatically execute harvesting rewards ) rewards may exist in another token form ### process.
• Exchange these rewards back to the original deposited stablecoin ( or other desired stablecoin ).
• Reinvesting these rewards can automatically compound returns, significantly increasing the annualized return 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 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 zero-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 "stickiness" of capital within DeFi protocols.

( 1. Capital prioritizes stability and trust.

During market fluctuations or downturns, capital often turns to mature "blue-chip" lending protocols and