Overview
The first quarter of 2025 reveals significant changes in the DeFi landscape. Major lending platforms are facing substantial yield compression, yet innovation at the market periphery indicates ongoing growth.
The Great Yield Compression
DeFi yields have seen a sharp decline:
- The vaults.fyi USD benchmark has dipped below 3.1%, lower than the U.S. 1-month T-bill yield of ~4.3%.
- Spark has undergone four consecutive rate cuts in 2025, reducing rates from 12.5% to 4.5%.
- Aave’s stablecoin yields hover around 3%, a stark contrast to previous expectations.
This trend reflects a cooling market atmosphere and reduced demand from borrowers.
The TVL Paradox: Growth Despite Lower Yields
While yields diminish, the total value locked (TVL) in major stablecoin vaults is growing:
- Vaults on Aave, Sky, Ethena, and Compound have nearly quadrupled from about $4 billion to roughly $15 billion.
- Even with cutting rates, Spark’s TVL increased over threefold since the start of the year.
Capital appears to be sticking, pointing towards rising institutional confidence in DeFi protocols as legitimate financial infrastructures.
Emerging Asset Managers: The Curators
The role of curators representing DeFi’s new asset managers is gaining traction. These curators are tasked with managing and optimizing lending vaults.
- Firms like Gauntlet are now managing nearly $750 million across several protocols, indicating a shift from traditional advisory roles to active management of capital strategies.
Landscape Shifts in Lending
There is a notable segmentation in the market:
- Blue-chip Infrastructure (Aave, Compound, Sky): These protocols mimic traditional money market funds, offering modest yields (2.4-6.5%) and maximum security.
- Infrastructure Optimizers: Platforms like Morpho and Euler provide increased capital efficiency and innovative strategies to earn higher yields.
Future Outlook
Several catalysts might reshape the lending market for 2025:
- Democratized curation could enable more users to become their own curators.
- RWA integration may provide alternative yield sources.
- Growing institutional adoption could heavily influence capital flows.
As DeFi protocols evolve, those managing risk effectively while catering to both conservative and aggressive investors are poised for success.
