$8 Billion in DeFi On-Chain Yields in 2025: Half of the Lending Demand Comes from “Borrowing from Oneself”

Author: Vadym

Translated by TechFlow

TechFlow Intro: This is the most comprehensive breakdown to date of DeFi yield sources—where the $8 billion came from, how it’s distributed across protocols, and how much involves recursive yield loops.

The most notable finding: roughly half of borrowing demand is recursive—users borrow funds to chase other yield opportunities; meanwhile, Aave’s 30-day average USDC yield stands at just 2%, and 58% of stablecoin TVL yields less than 3% annualized—below U.S. Treasury rates.

This is the most direct data reference for assessing the sustainability of current DeFi yields.

Full Text Below:

According to a detailed analysis published by researcher Vadym, DeFi generated approximately $8 billion in on-chain yield in 2025. The analysis maps the full landscape of where DeFi returns truly originate. It reveals that while aggregate yield is not scarce, its distribution is highly uneven, frequently recursive, and often difficult to package into structured products.

This report arrives amid a broad compression of DeFi yields. Borrowing rates on major lending platforms have converged near the Federal Reserve’s policy rate; the supply-side yield on “safe” stablecoins now averages ~3%—lower than both U.S. Treasuries and the Secured Overnight Financing Rate (SOFR). On Aave, the 30-day average yield for USDC and USDT sits at ~2%. The report notes that 58% of stablecoin TVL across Ethereum and its L2s—over $20 billion—yields less than 3% annualized.

Where Did This $8 Billion Come From?

The analysis identifies five primary yield sources, each with distinct risk profiles and scalability constraints.

AMM trading fees constitute the largest single category, totaling ~$4.2 billion, with Uniswap, Meteora, and Raydium collectively accounting for 62% of this amount. However, the analysis warns that these fees are extremely difficult for structured products to capture. Liquidity providers—especially those using concentrated liquidity—are frequently unprofitable due to toxic order flow, and LP manager pools have yet to gain meaningful market traction.

Borrowing interest across money markets generated ~$1.76 billion, spanning Aave, Morpho, Spark, Maple, and Fluid. Money markets account for over 60% of DeFi’s total TVL, making lending the industry’s economic backbone. Yet the analysis finds that approximately half of borrowing demand is recursive—borrowers redeploy borrowed funds into other yield sources, such as liquid staking tokens or yield-bearing stablecoins. On Aave’s Ethereum deployment, ~39% of borrowing demand serves leveraged ETH staking yield, while another 11.6% recycles into Ethena’s sUSDe.

Perpetual funding rates—pioneered on-chain by Ethena—contributed ~$300 million. Ethena’s sUSDe derives yield from both staking rewards and short-side funding fees—a mechanism hailed—and also met with caution—upon its 2024 launch.

Real-world assets (RWAs) generated an estimated $600 million to $900 million in yield, with U.S. Treasuries dominating the RWA market (~41%), followed by private credit (~25%).

Network staking rewards and MEV make up the remainder: Ethereum issued ~1 million ETH in 2025. The MEV component of staking yield continues to decline—private order-flow routing now handles ~90% of swap volume, reducing front-running opportunities.

Underdeveloped Yield Sources

The analysis also highlights several categories where yield capture remains negligible. Insurance underwriting generated only $5.5 million in premiums in 2025, primarily via Nexus Mutual. Options—despite $30–50 billion in open interest on centralized exchanges—have only ~$1.8 billion in on-chain open interest, with no breakthrough structured products yet emerging. Volatility selling and protocol risk transfer remain largely untapped; the analysis views this as a latent opportunity amid intensifying risk-management competition.

Sky’s Yield Balancing Act

As a case study in how protocols integrate fragmented yield sources, the analysis examines Sky (formerly MakerDAO). Amid yield compression, its 3.75% USDS savings rate attracted substantial capital. Sky’s TVL surged 38% in March, propelling it to become the fourth-largest DeFi protocol, with its sUSDS savings pool alone absorbing ~$6.5 billion in deposits.

The analysis reveals that ~70% of Sky’s revenue originates off-chain—primarily through Coinbase rewards earned via its Peg Stability Module (PSM) for USDC, and RWA exposure via products like BlackRock’s BUIDL and Janus Henderson funds. The remaining 30% comes from on-chain sources: Spark, Sky’s primary capital allocator, deploys funds across Sparklend, institutional lending on Maple, Anchorage, and other yield-bearing opportunities—based on prevailing rates.

The analysis concludes that this structure implies: even as traditional finance yields increasingly flow through permissioned channels, their redistribution still occurs on-chain—establishing a floor for DeFi rates and potentially enabling next-generation yield derivatives, including fixed-rate products, interest rate swaps, and structured tranches.