If a revolutionary financial movement can't even outperform your grandmother's bond portfolio, what good is it?

Author: Justin Alick

Translation: Deep Tide TechFlow

Has the era of easily obtaining cryptocurrency yields officially ended? A year ago, putting cash into stablecoins felt like finding a cheat code. Generous interest rates, (allegedly) zero risk. Now, that dream has turned to ashes.

The opportunities for stablecoin yields across the entire cryptocurrency space have collapsed, leaving DeFi lenders and yield farmers stranded in a near-zero return wasteland. What happened to that "risk-free" annual percentage yield (APY) golden goose? And who is to blame for yield farming turning into a ghost town? Let’s delve into the “autopsy report” of stablecoin yields; it’s not a pretty sight.

The Dream of "Risk-Free" Yields is Dead

Do you remember those good old days (around 2021) when various protocols were throwing out double-digit annual yields on USDC and DAI like candy? Centralized platforms expanded their assets under management (AUM) to massive levels in less than a year by promising stablecoin yields of 8-18%. Even so-called "conservative" DeFi protocols offered over 10% yields on stablecoin deposits. It was as if we had hacked the financial system—free money! Retail investors flocked in, convinced they had found the magical risk-free 20% yield of stablecoins. We all know how that ended.

Fast forward to 2025: that dream is on life support. Stablecoin yields have plummeted to single-digit lows or gone to zero, completely destroyed by a perfect storm. The promise of "risk-free returns" is dead, and it was never real to begin with. The DeFi golden goose turned out to be just a headless chicken.

Token Crashes, Yields Collapse

The first culprit is obvious: the cryptocurrency bear market. The drop in token prices has destroyed many sources of yield. The DeFi bull market was supported by expensive tokens; the 8% stablecoin yield you could earn before was because protocols could mint and distribute governance tokens whose value skyrocketed. But when those token prices crashed by 80-90%, the party was over. Liquidity mining rewards dried up or became nearly worthless. (For example, Curve's CRV token was once close to $6 but now hovers below $0.50—plans to subsidize liquidity provider yields have completely fallen apart.) In short, without a bull market, there are no free lunches.

Accompanying the price drop was a massive outflow of liquidity. The total value locked (TVL) in DeFi has evaporated from its peak. After reaching a high at the end of 2021, TVL entered a downward spiral, plummeting over 70% during the 2022-2023 crash. Billions of dollars in capital fled protocols, either as investors cut losses or as cascading failures forced funds to withdraw. With half the capital gone, yields naturally withered: fewer borrowers, reduced transaction fees, and significantly less distributable token incentives. The result is that DeFi's TVL (more like "total value lost") has struggled to recover to even a small fraction of its former glory, despite a mild rebound in 2024. When the fields have turned to dust, yield farmers harvest nothing.

Risk Appetite? Completely Anorexic

Perhaps the most significant factor stifling yields is simple fear. The risk appetite of the cryptocurrency community has plummeted to zero. After experiencing horror stories from centralized finance (CeFi) and DeFi exit scams, even the most aggressive speculators are saying, "No, thank you." Whether retail or whale, they have essentially sworn off the once-popular yield-chasing game. Since the disaster of 2022, most institutional funds have paused cryptocurrency investments, and those burned retail investors are now much more cautious. This shift in mindset is evident: when a dubious lending app could disappear overnight, why chase a 7% yield? That saying, "If it looks too good to be true, it probably is," has finally sunk in.

Even within DeFi, users are avoiding everything except the safest options. Leveraged yield farming, once the craze of DeFi summer, has now become a niche market. Yield aggregators and vaults are equally quiet; Yearn Finance is no longer a hot topic on crypto Twitter (CT). Simply put, no one has the appetite to try those quirky strategies now. The collective risk aversion is choking off the once-rich yields that rewarded those risks. No risk appetite = no risk premium. What’s left is only a meager base interest rate.

Let’s not forget the protocols: DeFi platforms themselves have also become more risk-averse. Many platforms have tightened collateral requirements, limited borrowing capacities, or shut down unprofitable pools. After witnessing competitors blow up, protocols are no longer pursuing growth at all costs. This means fewer aggressive incentives and more conservative interest rate models, further driving yields down.

The Revenge of Traditional Finance: Why Settle for 3% in DeFi When Treasury Yields Are 5%?

Here’s an ironic twist: the traditional financial world has started offering better yields than cryptocurrency. The Federal Reserve's interest rate hikes have pushed risk-free rates (Treasury yields) close to 5% in 2023-2024. Suddenly, grandma's boring Treasury yields exceed many DeFi pools! This completely flips the script. The entire allure of lending stablecoins was that banks paid 0.1% while DeFi paid 8%. But when Treasuries pay 5% with zero risk, DeFi's single-digit returns look extremely unattractive on a risk-adjusted basis. When Uncle Sam offers higher yields, why would a rational investor deposit dollars into a dubious smart contract to earn 4%?

In fact, this yield gap has siphoned capital away from the cryptocurrency space. Big players are starting to put cash into safe bonds or money market funds instead of stablecoin farms. Even stablecoin issuers can’t ignore this; they’ve begun investing reserves in Treasuries to earn hefty yields (most of which they keep for themselves). As a result, we see stablecoins sitting idle in wallets, not being deployed. The opportunity cost of holding stablecoins with 0% yields has become enormous, resulting in billions of dollars in lost interest. Dollars parked in "pure cash" stablecoins are doing nothing while real-world interest rates are soaring. In short, traditional finance has taken DeFi's lunch. DeFi yields must rise to compete, but they can’t rise without new demand. So, capital just leaves.

Today, Aave or Compound might offer about 4% annual yields on your USDC (with various risks), but the yield on a 1-year U.S. Treasury is about the same or higher. The math is brutal: on a risk-adjusted basis, DeFi can no longer compete with traditional finance. Smart money knows this, and capital won’t rush back until the situation changes.

Protocol Token Emissions: Unsustainable and Coming to an End

Let’s be honest: many of the generous yields were never real to begin with. They were paid through token inflation, venture capital subsidies, or outright Ponzi economics. This game can only last so long. By 2022, many protocols had to face reality: you can’t sustainably pay a 20% annual yield in a bear market without blowing up. We witnessed one protocol after another cutting rewards or shutting down projects because they were simply unsustainable. Liquidity mining activities were scaled back; as the vaults dried up, token incentives were slashed. Some yield farms literally exhausted their token emissions for payouts—the wells ran dry, and yield chasers shifted their focus.

The boom of yield farming has turned into a bust. Protocols that once printed tokens non-stop are now facing the consequences (token prices have hit rock bottom, and hired capital has long since departed).

In reality, the ride of yields has derailed. Crypto projects can no longer mint magic money to attract users unless they want to destroy their token value or incur the wrath of regulators. With fewer and fewer new "dumb money" (ahem, investors) willing to mine and dump these tokens, the feedback loop of unsustainable yields has collapsed. The only yields left are those truly supported by actual revenue (transaction fees, interest spreads), and those yields are much smaller. DeFi is being forced to mature, but in the process, its yields have shrunk to realistic levels.

Yield Farming: A Ghost Town

All these factors have converged to turn yield farming into a ghost town. Once vibrant farms and "aggressive" strategies feel like ancient history. Today, do you see anyone on crypto Twitter bragging about 1000% annual yields or new farm tokens? Hardly. Instead, you see exhausted veterans and liquidity refugees. The few remaining yield opportunities are either tiny and high-risk (thus ignored by mainstream capital) or so low they’re numbing. Retail investors are either letting their stablecoins sit idle (zero yield but preferring safety) or cashing out into fiat and putting funds into off-chain money market funds. Whales are striking deals with traditional financial institutions for interest or simply holding dollars, uninterested in playing the yield game in DeFi. The result: farms lie barren. This is DeFi's winter; crops won't grow.

Even where yields exist, the atmosphere is completely different. DeFi protocols are now touting integration with real-world assets (RWAs) to barely achieve 5% here and 6% there. Essentially, they are building bridges to traditional finance themselves—acknowledging that on-chain activities alone can no longer generate competitive yields. The dream of a self-sustaining crypto yield universe is fading. DeFi is realizing that if you want "risk-free" yields, you’ll end up doing what traditional finance does (buying government bonds or other physical assets). Guess what—those yields are at best hovering in the mid-single digits. DeFi has lost its edge.

So here we are: the stablecoin yields we once knew are dead. The days of 20% annual yields are a fantasy, and even 8% days are long gone. We face a sobering reality: if you want high yields in cryptocurrency now, you either take insane risks (with the corresponding possibility of total loss) or you’re chasing something elusive. The average DeFi stablecoin lending rate can barely exceed bank term deposits, if it can exceed them at all. On a risk-adjusted basis, DeFi yields are now downright laughable compared to other options.

No More Free Lunches in Cryptocurrency

In true doomsday prophecy style, let’s be blunt: the era of easily obtaining stablecoin yields is over. The dream of risk-free yields in DeFi is not just dead; it has been murdered by market gravity, investor fear, traditional financial competition, vanishing liquidity, unsustainable token economics, regulatory crackdowns, and stark reality. Cryptocurrency has gone through its wild west yield feast, ultimately ending in tears. Now, the survivors sift through the ruins, satisfied with a 4% yield and calling it a victory.

Is this the endgame for DeFi? Not necessarily. Innovation can always spark new opportunities. But the tone has fundamentally changed. Yields in cryptocurrency must be earned through real value and real risk, not magic internet money. The days of "stablecoin 9% yields because the numbers go up" are over. DeFi is no longer the smarter choice compared to your bank account; in fact, in many ways, it’s worse.

Provocative Question: Will yield farming make a comeback, or is it just a fleeting gimmick of the zero-interest era? The outlook seems bleak at the moment. Perhaps if global interest rates decline again, DeFi could shine by offering yields a few percentage points higher, but even then, trust has been severely damaged. It’s hard to put the genie of skepticism back in the bottle.

Currently, the crypto community must face a harsh truth: there are no risk-free 10% yields waiting for you in DeFi. If you want to earn high yields, you must risk capital in volatile investments or complex schemes, which is precisely what stablecoins were supposed to help you avoid. The whole point of stablecoin yields was to provide a safe haven with returns. That illusion has shattered. The market has awakened to the realization that "stablecoin savings" is often a euphemism for playing with fire.

Ultimately, perhaps this reckoning is healthy. Eliminating false yields and unsustainable promises may pave the way for more genuine, reasonably priced opportunities. But that is a long-term hope. The harsh reality today is that stablecoins still promise stability, but they no longer promise yields. The crypto yield farming market is in decline, and many former farmers have hung up their overalls. DeFi was once a paradise of double-digit yields, but now it struggles to even provide Treasury-level returns, with much greater risks involved. The crowd has noticed this, and they are voting with their feet (and funds).

Conclusion

As a critical observer, it’s hard not to maintain a radical intellectual stance: if a revolutionary financial movement can't even outperform your grandmother's bond portfolio, what good is it? DeFi needs to answer this question, and until it does, the winter of stablecoin yields will continue to grind on. The hype has disappeared, the yields have vanished, and perhaps the tourists have too. What remains is an industry forced to confront its own limitations.

Meanwhile, let us mourn the narrative of "risk-free yields." It was once entertaining. Now, back to reality: stablecoin yields are effectively zero, and the crypto world will have to adapt to life after the party. Be prepared not to be fooled by any new promises of easy returns. There are no free lunches in this market. The sooner we accept this, the sooner we can rebuild trust, and perhaps one day, find yields that are truly earned rather than given.

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