Stablecoin yields collapse, welcome to the era of risk.

Original author: Justin Alick

Original translation: Deep Tide TechFlow

Has the era of easily earning cryptocurrency returns officially ended? A year ago, depositing cash into stablecoins felt like finding a cheat code. Generous interest rates, (supposedly) zero risk. Now, that dream has vanished.

The stablecoin yield opportunity across the entire cryptocurrency space has collapsed, leaving DeFi borrowers and yield farmers trapped in a wasteland of near-zero returns. What exactly happened to that "risk-free" annualized yield (APY) golden goose (money tree)? And who should be held responsible for yield mining turning into a ghost town? Let's delve into the "autopsy report" of stablecoin yields—it's not a pleasant sight.

The dream of "risk-free" returns is dead.

Remember those good old days (around 2021) when protocols were throwing around candy-like offers of double-digit annualized yields on USDC and DAI? Centralized platforms, promising stablecoin yields of 8-18%, amassed enormous assets under management (AUM) in less than a year. Even so-called "conservative" DeFi protocols offered stablecoin deposit yields of over 10%. It was as if we'd cracked the financial system—free money! Retail investors flocked in, convinced they'd found the magical, risk-free 20% return on stablecoins. We all know how that ended.

Fast forward to 2025: This dream is already dying. Stablecoin yields have plummeted to single digits or even zero, utterly destroyed by a perfect storm. The promise of "risk-free returns" is dead, and it was never real to begin with. DeFi's golden goose (money tree) turned out to be nothing but a headless chicken.

The token price plummeted, and the returns collapsed accordingly.

The first culprit is obvious: the cryptocurrency bear market. The plummeting token prices destroyed many sources of yield. The DeFi bull market was propped up by expensive tokens; you could previously earn 8% stablecoin yields because protocols could mint and distribute governance tokens whose value skyrocketed. But when these tokens crashed 80-90%, the party was over. Liquidity mining rewards dried up or became virtually worthless. (For example, Curve's CRV token once approached $6, but now hovers below $0.50—the plan to subsidize liquidity provider yields has completely fallen apart.) In short, no bull market, no free lunch.

Accompanying the price decline was a massive outflow of liquidity. Total Value Locked (TVL) in DeFi has evaporated from its peak. After peaking at the end of 2021, TVL entered a downward spiral, plummeting by over 70% during the crash of 2022-2023. Billions of dollars of capital fled protocols, either as investors cut their losses or as a chain reaction of failures forced funds out. With half the capital gone, yields naturally withered: fewer borrowers, fewer transaction fees, and significantly fewer distributable token incentives. The result: DeFi's TVL (more like a "total value loss") has struggled to recover even a fraction of its former glory, despite a modest rebound in 2024. When the fields have turned to dust, the yield farms have nothing to harvest.

Risk preference? Complete anorexia

Perhaps the most significant factor killing yield is simple fear. The risk appetite of the cryptocurrency community has dropped to zero. After the horror stories of centralized finance (CeFi) and the scams of DeFi, even the most aggressive speculators are saying "no, thank you." Both retail and whale investors have essentially sworn off the once-popular yield-chasing game. Since the 2022 catastrophe, most institutional funds have paused cryptocurrency investments, and those burned retail investors are now far more cautious. This shift in mentality is evident: why chase 7% yields when a dubious lending app could disappear overnight? The adage "If it looks too good to be true, it probably isn't" has finally taken hold.

Even within DeFi, users are avoiding everything except the safest options. Leveraged yield mining, once the craze of the DeFi summer, is now a niche market. Yield aggregators and vaults are equally deserted; Yearn Finance is no longer a hot topic on crypto Twitter (CT). Simply put, nobody has the appetite to try those exotic strategies anymore. Collective risk aversion is killing the lucrative returns that once rewarded those risks. No risk appetite = no risk premium. All that's left is a meager base interest rate.

Let's not forget the protocol side: DeFi platforms themselves have also become more risk-averse. Many platforms have tightened collateral requirements, limited lending amounts, or closed unprofitable liquidity pools. After seeing competitors collapse, protocols are no longer pursuing growth at all costs. This means fewer aggressive incentives and more conservative interest rate models, pushing yields even lower once again.

The Revenge of Traditional Finance: Why Be Satisfied with DeFi's 3% When Treasury Yields Are 5%?

Here's an ironic twist: the traditional financial world is starting to offer better returns than cryptocurrencies. The Fed's rate hikes have pushed the risk-free rate (Treasury yield) to near 5% in 2023-2024. Suddenly, Grandma's boring Treasury yields are outperforming many DeFi liquidity pools! This completely flips the script. The whole appeal of stablecoin lending lies in the fact that banks pay 0.1% while DeFi pays 8%. But when Treasury bonds pay 5% with zero risk, DeFi's single-digit returns look incredibly unattractive on a risk-adjusted basis. Why would a sensible investor deposit dollars into a dubious smart contract to earn 4% when Uncle Sam offers higher yields?

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

Today, Aave or Compound might offer your USDC around 4% annualized yield (with various risks), but a 1-year US Treasury bond pays roughly the same or higher. The math is harsh: on a risk-adjusted basis, DeFi no longer has the ability to compete with traditional finance. Smart money knows this, and capital won't rush back until this changes.

Protocol Token Emissions: Unsustainable and Ending

Let's be honest: many of the hefty yields were never real to begin with. They were paid out through token inflation, venture capital subsidies, or outright Ponzi schemes. This game can only last so long. By 2022, many protocols had to face reality: you can't consistently pay a 20% annualized return in a bear market without collapsing. We witnessed protocol after protocol slashing rewards or shutting down projects because they were simply unsustainable. Liquidity mining activity was scaled back; as the treasury dried up, token incentives were halved. Some yield farms literally ran out of tokens available for payments—the wells dried up, and yield hunters moved on.

The boom of yield mining has turned into a recession. Protocols that once relentlessly printed tokens are now dealing with the consequences (token prices have plummeted, and the employed capital has long since left).

In reality, the yield curve has gone off track. Crypto projects can no longer mint magic coins to attract users unless they want to destroy their token value or incur the wrath of regulators. With fewer and fewer new investors willing to mine and sell these tokens, the unsustainable yield feedback loop has collapsed. The only remaining yields are those truly supported by real revenue (transaction fees, interest rate spreads), and these are much smaller. DeFi has been forced to mature, but in the process, its yields have shrunk to realistic levels.

Profit Mining: A Ghost Town

All these factors combined have turned yield mining into a ghost town. Yesterday's vibrant farms and "aggressive" strategies feel like ancient history. Browsing crypto Twitter today, do you see anyone touting 1000% annualized yields or new farm tokens? Almost none. Instead, you see exhausted veterans and liquidity-exiting refugees. The few remaining yield opportunities are either minuscule and risky (and therefore ignored by mainstream capital) or numbly low. Retail investors either leave their stablecoins idle (yielding zero but prioritizing safety) or cash out for fiat and invest in off-chain money market funds. Whales are negotiating with traditional financial institutions for interest or simply holding USD, uninterested in playing the DeFi yield game. The result: farms are barren. This is the DeFi winter, and crops aren't growing.

Even where yields are available, the atmosphere is completely different. DeFi protocols now tout integration with real-world assets (RWAs) to barely scrape by with 5% here and 6% there. Essentially, they're building their own bridges to traditional finance—an admission that on-chain activity alone can no longer generate competitive yields. The dream of a self-sufficient crypto yield universe is fading. DeFi is realizing that if you want "risk-free" returns, you'll eventually end up doing what traditional finance does (buying government bonds or other real-world assets). And guess what—those yields hover around the mid-single digits at best. DeFi has lost its edge.

So our current situation is this: stablecoin yields as we know them are dead. 20% annualized returns are a fantasy, and even 8% is a thing of the past. We face a stark reality: if you want high returns in cryptocurrencies right now, you either take on insane risks (with the corresponding possibility of total loss) or you're chasing something illusory. Average DeFi stablecoin lending rates barely exceed bank time deposit rates, if they do. On a risk-adjusted basis, DeFi yields are laughable compared to other options right now.

There is no longer a free lunch in cryptocurrencies.

In a truly apocalyptic style, let's be blunt: the era of easily earning stablecoin yields is over. The dream of risk-free returns in DeFi isn't just dead; it was murdered by a confluence of market forces, investor fear, competition from traditional finance, the disappearance of liquidity, unsustainable tokenomics, regulatory crackdowns, and stark realities. Cryptocurrencies have experienced their Wild West yield feast, ending in tears. Now, survivors scavenge through the ruins, content with 4% yields and calling it a victory.

Is this the end of DeFi? Not necessarily. Innovation always sparks new opportunities. But the tone has fundamentally changed. Yields in cryptocurrencies must be earned through real value and real risk, not through magical internet currencies. The days of "9% stablecoin yields because the numbers will go up" are over. DeFi is no longer a wiser choice than your bank account; in fact, in many ways, it's worse.

A provocative question : Will yield farming make a comeback, or is it just a fleeting gimmick in the era of zero interest rates? Right now, the outlook seems bleak. Perhaps if global interest rates fall again, DeFi could shine once more by offering yields a few percentage points higher, but even then, trust has been severely damaged. It's difficult to put the skeptical sprite back into its bottle.

Currently, the crypto community must face a harsh truth: there are no risk-free 10% returns in DeFi. If you want to earn high returns, you must risk investing capital in volatile investments or complex schemes, which is precisely what stablecoins are supposed to prevent you from doing. The whole point of stablecoin yields was to provide a safe haven with returns. This illusion has been shattered. The market has woken up and realized that "stablecoin savings" is often a euphemism for playing with fire.

Ultimately, perhaps this reckoning is healthy. Eliminating sham yields and unsustainable promises could pave the way for more genuine, reasonably priced opportunities. But this is a long-term hope. The reality today is harsh: stablecoins still promise stability, but they no longer promise yields. The crypto yield farming market is in decline, and many former farmers have already hung up their work clothes. DeFi, once a haven of double-digit yields, now struggles to even offer Treasury-level returns, and is far riskier. The crowd has noticed, and they are voting with their feet (and their money).

Conclusion

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

At the same time, let's mourn the narrative of "risk-free returns." It was once very entertaining. Now, back to reality, stablecoin yields are practically zero, and the crypto world will have to adjust to life after the party. Be prepared and don't be fooled by any new promises of easy gains. There's no such thing as a free lunch in this market. The sooner we accept this, the sooner we can rebuild trust, and perhaps one day, we'll find returns that are truly earned, not given away.