Author: Vadym

Translated by: Deep Tide TechFlow

Deep Tide Guide: This is currently the most comprehensive breakdown of the sources of DeFi yields—where the $8 billion comes from, which protocols it is distributed across, and how much is circular.

The most noteworthy conclusion is: about half of the borrowing demand is recursive, where users borrow money to seek out another source of yield; meanwhile, the 30-day average yield of USDC on Aave is only 2%, and 58% of the stablecoin TVL has an annual yield of less than 3%, lower than U.S. Treasuries.

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 yields in 2025. This analysis outlines the complete map of the true sources of DeFi returns. The analysis reveals that yields are not lacking in total volume, but their distribution is extremely uneven, often exhibiting circularity, and in many cases, difficult to bundle into structured products.

At the time of this result's release, yields across DeFi had significantly narrowed. The borrowing rates of major lending platforms have approached the Federal Reserve's policy rates, and the average yield for "safe" stablecoins is currently about 3%—lower than U.S. Treasuries and the secured overnight financing rate (SOFR). On Aave, the 30-day average yield for USDC and USDT is approximately 2%. The report points out that in over $20 billion of stablecoin liquidity pools on Ethereum and its L2s, 58% of the TVL annual yield is 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, reaching about $4.2 billion, with Uniswap, Meteora, and Raydium accounting for 62% of this total. However, the analysis warns that these fees are extremely difficult to capture in structured products. Liquidity providers—especially those using concentrated liquidity—frequently incur losses due to toxic order flow, and LP manager funds have also failed to gain substantial market recognition.

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

Perpetual contract funding rates are primarily pioneered on-chain by Ethena, contributing about $300 million. Ethena's sUSDe earns yield from staking rewards and short funding rates—a mechanism that received acclaim and caution upon its launch in 2024.

Real-world assets generated an estimated yield of about $600 million to $900 million, with U.S. Treasuries holding the largest share in the RWA market at about 41%, while private credit accounts for 25%.

Network staking rewards and MEV constitute the remaining portion, with Ethereum expected to issue about 1 million ETH in 2025. The portion of staking yield from MEV has been steadily declining—private order flow routes currently handle about 90% of trading volume, reducing the opportunities for front-running.

Undeveloped sources of yield

The analysis also pointed out several categories where yield capture remains negligible. Insurance underwriting generated only $5.5 million in premiums in 2025, primarily via Nexus Mutual. Options—despite centralized exchanges having open contracts totaling $30 billion to $50 billion—boast only about $1.8 billion in on-chain open contracts, with no breakthrough structured products emerging. Volatility selling and protocol risk transfer remain largely undeveloped, and the analysis views this as a potential opportunity as competition in risk management intensifies.

Sky's yield balancing technique

As a case study of how protocols integrate these decentralized sources of yield, the analysis examines Sky (formerly MakerDAO). Against the backdrop of yield compression, its 3.75% USDS savings rate attracted significant capital. Sky's TVL surged by 38% in March, making it the fourth-largest DeFi protocol, with the sUSDS savings pool alone attracting about $6.5 billion in deposits.

The analysis reveals that about 70% of Sky's income originates off-chain—mainly from earning Coinbase rewards on USDC through the Peg Stability Module (PSM) and from RWA exposures obtained through products like BlackRock's BUIDL and Janus Henderson funds. The remaining 30% comes from on-chain sources, with Spark as Sky's main fund allocator, directing funds into Sparklend, Maple institutional lending, Anchorage, and other yield-generating opportunities based on current rates.

The analysis concludes that the implication behind this structure is that even as traditional financial yields increasingly flow through licensed channels, their redistribution still occurs on-chain, providing a lower limit for DeFi interest rates, and potentially creating conditions for the next generation of yield derivatives—including fixed-rate products, interest rate swaps, and structured tiered products.