Author: Vadym

Translation: Deep Tide TechFlow

Deep Tide Introduction: This is currently the most comprehensive dissection of the sources of DeFi yield—where the $8 billion comes from, which protocols it is distributed across, and how much is recursive.

The most noteworthy conclusion is that about half of the borrowing demand is recursive, with users borrowing money to pursue another yield source; at the same time, the 30-day average yield on USDC on Aave is only 2%, and 58% of stablecoin TVL has an annual yield of less than 3%, below U.S. Treasury rates.

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

The full text is as follows:

According to a detailed analysis published by researcher Vadym, DeFi generated approximately $8 billion in on-chain yield in 2025. This analysis outlines the complete landscape of the true sources of DeFi returns. The analysis reveals that while yields do not lack in total volume, their distribution is extremely uneven, often exhibiting circularity, and in many cases, difficult to package into structured products.

At the time of this result's release, yields across DeFi had significantly narrowed. The borrowing rates on major lending platforms had approached the Federal Reserve's policy rate, and the yield on "safe" stablecoin supply is currently averaging about 3%—lower than U.S. Treasury and Secured Overnight Financing Rate (SOFR). On Aave, the 30-day average yield for USDC and USDT is about 2%. The report points out that within the stablecoin liquidity pools exceeding $20 billion on Ethereum and its L2, 58% of the TVL has an annual yield of less than 3%.

Where this $8 billion comes from

The analysis identifies five main sources of yield, each with different risk characteristics and scale constraints.

AMM trading fees are the largest single category, amounting to approximately $4.2 billion, with Uniswap, Meteora, and Raydium accounting for 62% of this. However, the analysis warns that these types of fees are extremely difficult to capture through structured products. Liquidity providers—especially those using concentrated liquidity—frequently incur losses due to toxic order flow, and LP manager funds have not achieved substantial market recognition.

Borrowing interest from various money markets has generated approximately $1.76 billion, involving Aave, Morpho, Spark, Maple, and Fluid. Money markets account for over 60% of the total DeFi TVL, making lending an economic pillar of the industry. However, the analysis finds that about half of the borrowing demand is recursive—users cycle borrowed funds into other yield sources, such as liquidity-staking tokens or yield-bearing stablecoins. In Aave’s Ethereum deployment, approximately 39% of borrowing demand is used for leveraged ETH staking yield, with another 11.6% cycling into Ethena's sUSDe.

Perpetual contract funding fees are primarily generated on-chain by Ethena, contributing about $300 million. Ethena's sUSDe earns yield from staking rewards and airdrop funding fees—this mechanism received both praise and caution when launched in 2024.

Real-world assets produced estimated yields of about $600 to $900 million, with U.S. Treasury securities accounting for the largest share in the RWA market at approximately 41%, and private credit making up 25%.

Network staking rewards and MEV make up the remaining portion, with Ethereum issuing approximately 1 million ETH in 2025. The portion of staking yield derived from MEV has been declining—private order flow currently handles about 90% of the trading volume, reducing the opportunities for front-running.

Undeveloped sources of yield

The analysis also pointed out several categories where yield capture remains insignificant. Insurance premiums generated in 2025 amounted to just $5.5 million, mainly achieved through Nexus Mutual. Options—despite centralized exchanges having open contracts reaching $30 to $50 billion—have about $1.8 billion in open contracts on-chain, with no breakthrough structured products appearing. Volatility selling and protocol risk transfer are largely undeveloped, and the analysis believes that as risk management competition intensifies, this represents a potential opportunity.

Sky's yield balancing act

As a case study of how protocols can integrate these dispersed yield sources, the analysis examines Sky (formerly MakerDAO). In the context of yield compression, its 3.75% USDS savings rate attracted a large amount of capital. Sky's TVL surged by 38% in March, becoming the fourth-largest DeFi protocol, with the sUSDS savings pool alone absorbing approximately $6.5 billion in deposits.

The analysis reveals that about 70% of Sky's income comes from off-chain origins—primarily from earning Coinbase rewards through pegged stable modules (PSM) with USDC, as well as exposure to RWAs obtained through products like BlackRock BUIDL and Janus Henderson funds. The remaining 30% comes from on-chain sources, with Spark as Sky’s primary fund allocation entity, directing funds into Sparklend, Maple institutional lending, Anchorage, and other yield-bearing opportunities based on current rates.

The analysis suggests that the implications behind this structure are: even as traditional financial yields increasingly flow through permissioned channels, their redistribution still occurs on-chain, providing a lower bound for DeFi rates and potentially creating conditions for the next generation of yield derivatives—including fixed-rate products, interest rate swaps, and structured layer products.

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