Author: CoinW Research Institute

Key Points

On-chain lending functions are gradually transforming from early tools primarily focused on leverage to becoming the infrastructure for capital allocation. On-chain lending has become an important part of the DeFi ecosystem. Currently, the TVL of on-chain lending protocols is approximately $64.3 billion, accounting for about 53.54% of the total DeFi TVL.

Aave has become the leading protocol in the on-chain lending space, with a TVL of about $32.9 billion, representing around 50% of the total TVL in the lending sector. Meanwhile, protocols like Morpho continue to consolidate their market share, resulting in a structure characterized by one dominant player and many strong competitors in the on-chain lending space.

Credit assets have become an important part of on-chain RWA (Real World Assets). As more types of debt claims are introduced on-chain, and as institutional demand for compliant and traceable collateral continues to rise, RWA lending is expected to become another significant growth engine. At the same time, the dual improvement of the macro monetary environment and regulatory framework is collectively reducing the costs of capital flow and compliance, creating smoother external conditions for market development.

On-chain lending protocols also face multiple risks. First, they are highly dependent on the value of collateral and market liquidity, making them susceptible to liquidation during market fluctuations. Second, the introduction of unsecured lending and RWA increases credit default and counterparty risks. Additionally, there is an excessive reliance on token incentives that artificially inflate scale; the security of bridging in cross-chain expansion also exposes high risks. Therefore, on-chain lending protocols must balance safety, liquidity, and compliance while pursuing growth.

As securities tokenization and compliant assets like U.S. Treasury bonds gradually enter the on-chain space, on-chain lending is evolving from a crypto-native financing tool to mainstream financial infrastructure, with a more robust collateral base. In this process, inter-institutional on-chain lending is expected to become an important incremental growth area. Meanwhile, the coexistence of fixed and floating interest rates will drive the continuous maturation of the on-chain interest rate system. Regulatory and capital logic may also prompt the market to differentiate into a structure where compliant and robust layers coexist with high-risk innovation layers, accelerating the integration of on-chain lending into the global capital market through asset compliance and institutional connections.

Table of Contents

1. Overview of the On-chain Lending Market

• 1.1. Market Size and Capital Flow
• 1.2. Macro and Industry Driving Factors
• 1.3. Regulatory Dynamics and Compliance

1. Classification of the On-chain Lending Market

• 2.1. Collateralized Lending Protocols
• 2.2. Unsecured Lending Protocols
• 2.3. Modular Lending Protocols
• 2.4. RWA and Lending Integration

1. Competitive Landscape

• 3.1. Leading Protocol Landscape and TVL Changes
• 3.2. Revenue Structure and Profit Model Comparison
• 3.3. User Profiles and Asset Structures
• 3.4. Multi-chain Deployment and Ecosystem Integration

1. Risk Dilemmas and Challenges

• 4.1. Liquidity Risk
• 4.2. Credit Default Risk
• 4.3. Illusions of Incentives and Growth
• 4.4. Cross-chain Risks

1. Possible Development Trends

• 5.1. On-chain Lending for Inter-institutional Transactions
• 5.2. Tokenization of Securities and Collateral Potential
• 5.3. U.S. Treasury Bonds as Core Lending Assets
• 5.4. Coexistence of Fixed and Floating Interest Rates
• 5.5. Dual-layer Structural Differentiation in the Lending Market

1. Conclusion

References

On-chain lending protocols have become an important part of the DeFi ecosystem. From the initial leverage expansion tools, they have now expanded to encompass diversified capital markets including stablecoins and RWAs. On-chain lending protocols not only stably carry liquidity but are increasingly becoming important hubs for capital pricing and allocation. Currently, the TVL of on-chain lending protocols is approximately $64.3 billion, accounting for about 53.54% of the total DeFi TVL (nearly $120.2 billion). Specifically, Aave alone accounts for about 50% of the lending TVL, approximately $32.9 billion; Morpho and others hold certain market shares.

Additionally, the diversity of funding sources and asset classes in on-chain lending is also increasing, with RWA becoming a new engine for the growth of lending protocols. The structure of the on-chain lending market faces a situation of both growth and challenges. On one hand, the TVL of lending protocols has gradually rebounded, showing signs of overall market recovery. On the other hand, the market still faces structural challenges, with severe liquidity fragmentation, dispersed funds between protocols and chains, and a lack of efficient liquidity integration mechanisms; traditional stablecoin lending is nearing saturation, while RWA and institutional credit remain in short supply, leading to interest rate differentiation and differences in risk preferences. The following report will systematically analyze the operational logic, current development status, and trends of the on-chain lending sector from dimensions such as market overview, market classification, and competitive landscape.

For the full report, please visit: https://www.coinw.com/en/research/on-chain-lending-market-structure-risks-and-the-new-cycle/106

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