Written by: Little Pie

A report jointly published by CoinShares and Token Terminal on August 6 provides a set of data.

In Q2 2026, total deposits in DeFi decreased by about 15% year-on-year. During the same period, on-chain real world assets (RWA) deposits surged from $2.33 billion to $7.44 billion, with a year-on-year growth of over 200%. Total spot trading volume on DEXs plummeted by about 70%, while RWA spot trading volume grew against the trend by approximately 220%.

The shrinkage in DeFi is partially due to crypto-native assets, with most of the growth coming from traditional financial assets moving on-chain: U.S. Treasury bonds, money market funds, private credit, gold, crude oil, and stock index futures.

This is the current state of crypto finance.

DeFi is contracting, RWA is expanding

DeFi TVL has continued to decline in 2026. From around $115 billion at the beginning of the year, it fell to a low within the year of $69.4 billion in early June, a drop of nearly 40%. The foundation of Ethereum DeFi decreased by 43%, Arbitrum by 55%, and Plasma by nearly 75%.

The factors driving this decline are clear: BTC entered a downward cycle from its historic high of over $122,000 in October 2025, dragging the entire crypto market into deleveraging; declining yields led to the unwinding of arbitrage cycles and recursive borrowing; combined with 121 hacking incidents in 2026, resulting in cumulative losses of about $942 million, after the $293 million theft from Kelp DAO on April 18, Aave users withdrew about $15 billion in deposits within four days.

Confidence is evaporating, leverage is being dismantled, and speculative funds are exiting; this is the "crypto-native" side of DeFi contraction.

In stark contrast to the shrinkage in crypto-native DeFi is the explosion of RWA deposits.

Data from the report shows that the main components of RWA deposits are: tokenized treasury bond funds (led by BlackRock's BUIDL, with AUM reaching about $2.87 billion by mid-July, making it the largest single tokenized treasury bond product), yield-generating stablecoins (Sky Protocol's sUSDS led this category in Q2), multi-strategy funds, and private credit. The common feature of these assets is that they generate yield while being used as on-chain collateral and lending targets, allowing investors to retain the yield of the underlying assets while obtaining on-chain liquidity.

Lending protocols like Aave, Morpho, and Kamino are accepting RWA as collateral in large quantities. Users can borrow stablecoins using tokenized treasury bonds instead of requiring ETH or BTC as collateral, as was previously the case. The latter can fluctuate by 30%, while the former has almost zero volatility. For lending protocols, this means less liquidation risk; for borrowers, it means higher capital efficiency.

Ethereum holds nearly 70% of the market share for RWA lending collateral.

CoinShares explains that both parties in loans prefer markets with deep liquidity, and Ethereum has no rival in large trades and institutional-level capital inflows and outflows. Solana is growing rapidly at the spot trading end, while Hyperliquid has emerged strongly in the derivatives space.

By mid-2026, the total value of on-chain RWA (excluding stablecoins) reached about $37.89 billion, with approximately 789,000 holder addresses. The tokenized U.S. treasury bond category has grown from less than $1 billion at the beginning of 2025 to over $15 billion, with BlackRock controlling about 40% of the share.

Explosion of derivatives

If the deposit data reflects "asset on-chain," then the derivatives data reflects "trading on-chain."

RWA perpetual contracts have exploded from a virtually non-existent category into one of the main forces of on-chain trading in less than six months. Quarterly trading volume surged from $12.37 billion in Q4 2025 to $202.7 billion in Q2 2026, an increase of about 16 times. Data from DWF Ventures at the end of July showed that RWA perpetual contracts once accounted for 37% of the total trading volume of all perpetual contracts in the market.

TradeXYZ on Hyperliquid is the largest player in this field, with a cumulative trading volume of $350.7 billion, far exceeding Binance's $42.1 billion. The open interest in RWA perpetual contracts on Hyperliquid reached a historical high of $2.65 billion in May, doubling within two months. The trading targets are concentrated in commodities (70-95% share), but equity perpetual contracts surged by 121% month-on-month in May, with S&P 500, Nasdaq 100, and tech stocks becoming the fastest-growing categories.

What does this mean?

A decentralized exchange built on crypto-native infrastructure has nearly half of its trading volume coming from crude oil, gold, the S&P 500 index, and Nvidia stock, completely unrelated to cryptocurrencies. Hyperliquid is no longer just a DeFi protocol; it is becoming a 24/7 global trading venue for financial assets.

Jeremy Allaire, co-founder of Circle, commented after seeing this data: The crypto market is shifting from "speculation on endogenous digital goods" to external factors.

Not replacement, but embedding

When these data points are put together, the picture is clear.

On-chain finance is growing, but the source of that growth has quietly changed. The on-chain boom of 2021 was driven by a token incentive liquidity mining cycle: protocols issue tokens → users deposit assets to earn tokens → tokens rise → more people come to deposit, essentially an internal cycle of crypto assets. This cycle collapses rapidly when the market cools down; the decline of DeFi TVL in 2026 is a continuation of this collapse.

The growth on-chain in 2026 has entirely different driving forces. BlackRock is bringing U.S. Treasury bonds onto Ethereum, drawn by the fact that on-chain settlement is faster, cheaper, and operates around the clock compared to traditional settlement. Institutional investors use tokenized treasury bonds as collateral for borrowing on Aave, aiming to obtain both the 4.5% treasury yield and on-chain liquidity simultaneously. Traders engage in crude oil perpetual contracts on Hyperliquid to take advantage of geopolitical events that might erupt on Sunday evenings, while traditional markets are closed, but on-chain is not.

CoinShares CEO Jean-Marie Mognetti provided an assessment in the report: When an asset class grows against the trend during its host ecosystem's downturn, it indicates that demand is driven by financial utility, independent of market cycles.

The growth of RWA does not depend on a crypto bull market, token incentives, or speculative sentiment. It relies on real improvements in settlement efficiency, round-the-clock liquidity, and capital efficiency.

A set of numbers sufficiently illustrates the gap. The global stock market is valued at over $100 trillion, while the currently tokenized on-chain portion is about $2.2 billion, with a penetration rate of 0.002%. CoinShares compares the current stage to stablecoins in 2019, where the concept has been validated, and infrastructure is just being laid out, but mass adoption will take time.

The GENIUS Act was signed into law in July 2025, providing a federal regulatory framework for stablecoins, and the OCC has already issued national trust bank charters to companies like Circle and Paxos. Regulatory clarity is releasing institutional capital that was previously on the sidelines. BlackRock applied to the SEC in May for two new tokenized funds, plus an on-chain share of a $7 billion money market fund. This company, managing over $10 trillion in assets, is upgrading tokenization from an experimental project to a product line.

The $7.44 billion in RWA DeFi deposits represents only about 20% of the total on-chain real assets of $37.89 billion. The report suggests that approximately $2.5 billion of RWA is currently deployed in DeFi lending, compared to over $30 billion in tokenized asset base, indicating there is 12 times the potential for expansion, provided that technological and regulatory barriers continue to be removed.

The growth narrative of on-chain finance is being rewritten.

In the last cycle, the narrative from the crypto industry was that DeFi would replace banks. Data from this cycle indicates that replacement has not occurred. What is happening is that banks' assets are beginning to select blockchain as their settlement layer.

Blockchain has not replaced Wall Street; it is becoming the new pipeline for Wall Street.