The first quarter of 2025 tells a clear story about Defi’s evolution. While yields on the major lending platforms have been compressed significantly, changing the edges of the market shows continuous maturity and growth of the Defi.
The great compression of the yield
Defi yields refused strongly on all major lending platforms:
- The Vaults.Fyi USD Benchmark fell to under 3.1%, below the US 1-month t-bill yield of ~ 4.3% for the first time since late 2023. This benchmark, a weight average across four top markets, approached 14% in the late 2024.
- Spark enforces Four consecutive rates decrease Only in 2025. Starting the year at 12.5%, the rates were cut to 8.75%, then 6.5%, and now sit at 4.5%.
- AAVE’s stablecoin yields to mainnet is around 3% for USDC and USDTLevels that may be considered failure months ago.
This compression suggests a market that has chilled significantly from the late-2024 exuberance, with the borrower’s occupied demand on the main platforms.
The TVL Paradox: Growth beyond the lower yield
Despite falling yields, stablecoin’s major vaults have experienced exceptional growth:
- Together, the largest vaults in AAVE, Sky, Etha, and compounds have almost a size of size in the last 12 months, extending from about $ 4 billion to $ 15 billion in supply deposits.
- Despite the subsequent reduction in spark rates, TVL has grown more than 3x from the start of 2025.
While the yields fell from about 15% to under 5%, the capital remained sticky. This seemingly conflicting behavior reflects the increasing institution’s comfort with defi protocols as a legitimate financial infrastructure rather than the speculative vehicles.
Raising Curators: The new Defi asset managers
The emergence of the curation represents a significant transfer to the lending defi. Introduced protocols such as morpho and euler Curators who builds, manages, and optimizes lending vaults.
These curators serve as a new breed of Defi Asset managers, markets of markets, setting risk parameters, and advising capital allocation to deliver enhanced yields. Unlike traditional service providers that only advise protocols, curators actively manage capital expansion techniques in various lending opportunities.
On platforms such as Morpho and Euler, curators manage risk management functions: the choice of which properties can serve as collateral, setting the appropriate ratios of value-importance, choosing oracle price feeds, and implementing supply caps. It is important that they develop targeted lending techniques optimized for specific rewards profile, which sit between passive lenders and yield resources.
Companies like gauntlet, previously service providers in protocols such as AAVE or compound, which directly manages today Nearly $ 750 million on TVL in many protocols. With performance fees from 0-15%, this potential represents millions in annual income with significantly more upside down than traditional service repair. Each one a morpho dashboard, the curators are combined — with it formed almost 3 million in income and based on Q1 income is on the track to do 7.8mm in 2025.
The most successful Curator techniques maintain a higher yield especially by receiving higher yield collaterals in more aggressive LTV ratios, especially Pendle LP tokens. This method requires sophisticated risk management but delivers a better return to the currently compressed environment.
As examples of concrete, those yielding to the largest USDC vaults in both Morpho and Eulers have released vault.fyi benchmarks, showing 5-8% base yield of base and 6-12% yield to token rewards.
Protocol stratification: a layered market
The compressed environment created a unique market structure:
1. Blue-chip infrastructure (AAVE, compound, sky)
- Function similar to traditional money market market
- Offers moderate produce (2.4-6.5%) with maximum security and liquidity
- Growing part of the TVL’s growth lion
2. Infrastructure optimizers and strategies
- Optimizers of the Base Layer: Platforms like Morpho and Euler provide modular infrastructure that enables greater efficiency in capital
- Strategy strategies: Special companies such as MEV Capital, Smokehouse, and Gauntlet build on these platforms to deliver higher yield Upward by 12% in USDC and USDT (As late as March)
This two-tier relationship creates a more dynamic market where strategy providers can quickly repeat the yield opportunities without the development of basic infrastructure. The latter yields are ultimately available to users depend on the same efficiency of the base protocol and the sophistication of the techniques that are deployed to the top.
This fixed market means that users are now navigating a more complex scene where the relationship between protocols and techniques determines the potential yield. While blue-chip protocols offer simplicity and safety, the combination of optimization of protocols and specialized techniques provides yields that are comparable to what has previously existed on platforms such as AAVE or compound during higher environmental rates.
Chain by chain: where the produce lives now
Despite the proliferation of the L2S and alternative L1S, Ethereum Mainnet has continued to pose many of the leading harvest opportunities, both along and exclusively of token incentives. The persistence of the Ethereum yield advantage is noticeable in a market where incentive programs often change capital looking for harvesting in newer chains.
Among the mature chains (Ethereum, arbitrum, base, polygon, optimism), the yields remain depressed throughout the board. Outside of Mainnet, most of the attractive yield opportunities are concentrated at the base, suggesting an emerging paper as a second harvest hub.
Later chains with large incentive programs (such as Berachain and Sonic) show elevated produce, but maintaining these rates remains suspicious as incentives eventually taper.
The Defi Mullet: Fintech on the front, Defi on the back
A significant development in this quarter is the introduction of the coinbase of collateralized loans that Morpho boosted on its base network. This integration represents the emerging “defi mullet” thesis – fintech interface on the front, defi infrastructure on the back.
As coinbase head of consumer products Max Branzburg mentioned: “This is a moment where we plant a flag that Coinbase is coming, and we carry millions of users of their billions of dollars.” Integration brings Morpho lending capabilities directly to the Coinbase user interface, allowing users to borrow up to $ 100,000 in the USDC against their Bitcoin handles.
This method covers the view that billions -billion will eventually be used as Ethereum and Defi’s protocols without knowing it – as they use TCP/IP today without consciousness. Traditional Fintech companies will further strengthen this approach, maintaining familiar interfaces during Defi’s infrastructure.
Coinbase implementation is particularly noticeable for its entire integration within the Coinbase ecosystem: Users posted BTC collateral on Mint CBBTC (coinbase’s coinbase borrowed) and borrowed USDC (coinbase stablecoin) in Morpho (a coinbase-funded lending platform) ATOP Base (CoinBase’s 2 Network).
Expectations: Catalysts for Lending Market
There are many factors that can reshape a lending landscape by 2025:
- Democratized Curation: Like the mature curator models, can AI agents in crypto enable everyone to become their own curator? Earlier, advancing on-chain automation suggests a future where custom risk-harvest optimization becomes more accessible to retail users.
- RWA integration: The ongoing evolution of real-world asset integration can introduce new yield sources that are less linked to crypto market cycles.
- Adopting an institution: The institutional convenience with the defi infrastructure suggests growing capital flows that may change dynamic lending.
- SPECIFIC NICHES IN LIFE: The emergence of highly specialized lending markets that targets the specific user’s specific needs beyond the simple generation of harvest.
Protocols that are best positioned to thrive are those who can work well throughout the risk spectrum, which serve both conservative institutional capital and more aggressive harvest seekers, through increasingly sophisticated risk management and capital optimization techniques.
