The False Boom of $8 Billion in DeFi Yields by 2025: Half of Lending is Just "Money Transfer"

Author: Vadym

Compiled by: Deep Tide TechFlow

Deep Dive: This is the most complete breakdown of DeFi revenue sources to date—where did the $8 billion come from, which protocols are they distributed across, and how much of it is a nested loop?

The most noteworthy conclusion is that about half of the borrowing demand is recursive, with users using borrowed money to seek another source of income; meanwhile, the 30-day average yield of USDC on Aave is only 2%, and 58% of stablecoins' TVL have an annualized yield of less than 3%, lower than that of US Treasury bonds.

This is the most direct data reference for assessing the sustainability of current 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 picture of the true sources of DeFi returns. The analysis reveals that while yields are not scarce in total quantity, their distribution is extremely uneven, often exhibiting cyclical patterns, and in many cases, they are difficult to package into structured products.

This result comes as yields across DeFi have narrowed significantly. Borrowing rates on major lending platforms have converged to Federal Reserve policy rates, and the supply yield of "safe" stablecoins currently averages around 3%—lower than the US Treasury bond and the Secured Overnight Funding Rate (SOFR). On Aave, the 30-day average yield for USDC and USDT is around 2%. The report notes that among the more than $20 billion in stablecoin liquidity pools on Ethereum and its L2, 58% of the TVL (total value of funds) has an annualized yield below 3%.

Where did this $8 billion come from?

The analysis identified five main sources of revenue, each with different risk characteristics and size constraints.

AMM transaction fees constitute the largest single category, amounting to approximately $4.2 billion, with Uniswap, Meteora, and Raydium accounting for a combined 62%. However, analysts warn that these fees are extremely difficult for structured products to capture. Liquidity providers—especially those using centralized liquidity—frequently suffer losses due to toxic order flows, and LP manager pools have failed to gain substantial market acceptance.

Borrowing interest generated approximately $1.76 billion across various money markets, including Aave, Morpho, Spark, Maple, and Fluid. Money markets account for over 60% of the total TVL (TVL) in DeFi, making lending a pillar of the industry's economy. However, analysis reveals that about half of the lending demand is recursive—users borrow and then recycle the funds to other yield sources, such as liquidity-staking tokens or yield-bearing stablecoins. In the Aave Ethereum deployment, approximately 39% of lending demand was used for leveraged ETH staking yields, and another 11.6% circulated in Ethena's sUSDe.

Perpetual contract funding rates were primarily pioneered on-chain by Ethena, contributing approximately $300 million. Ethena's sUSDe generates yield from staking rewards and short-selling funding rates—a mechanism that garnered both praise and skepticism when it launched in 2024.

Real-world assets generated an estimated yield of approximately $600 million to $900 million, with U.S. Treasury bonds accounting for the largest share of the RWA market at approximately 41%, and private credit accounting for 25%.

The remainder consists of network staking rewards and MEVs, with Ethereum issuing approximately 1 million new ETH in 2025. The portion of staking yield from MEVs continues to decline—private order flow routing currently handles about 90% of the swap volume, reducing opportunities for front-running.

Untapped revenue sources

The analysis also points to several categories where yield capture remains negligible. Insurance underwriting generated only $5.5 million in premiums in 2025, primarily through Nexus Mutual. Options—despite $30-50 billion in open interest on centralized exchanges—have approximately $1.8 billion in on-chain open interest, with no groundbreaking structured products yet emerging. Volatility selling and protocol risk transfer are largely untapped, representing a potential opportunity, according to the analysis, as competition in risk management intensifies.

Sky's Profit Balancing Technique

As a case study of how protocols integrate these diversified yield sources, 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 38% in March, making it the fourth-largest DeFi protocol, with its sUSDS savings pool alone absorbing approximately $6.5 billion in deposits.

Analysis reveals that approximately 70% of Sky's revenue originates off-chain—primarily USDC earned through Coinbase rewards pegged to the Stable Module (PSM), and RWA exposure gained through products such as BlackRock's BUIDL and the Janus Henderson Fund. The remaining 30% comes from on-chain sources, with Spark acting as Sky's primary fund allocator, channeling funds to Sparklend, Maple institutional lending, Anchorage, and other yield-generating opportunities based on current interest rates.

Analysts believe that the implication behind this structure is that even as traditional financial yields increasingly flow through permissioned channels, their redistribution still occurs on-chain, providing a lower bound for DeFi interest rates and potentially paving the way for the next generation of yield derivatives—including fixed-rate products, interest rate swaps, and structured tiered products.