Tiger Research: DeFi yields decline, what real value does RWA have?

Key Takeaways

• This report is written by Tiger Research. Aave V3's USDC deposit rate is currently 2.7%, lower than the US 10-year Treasury yield of 4.3%. The short-term dividends brought by speculation in DeFi are fading.
• The market is not dead. Although yields are generally declining, Real World Assets (RWA) and stablecoins have grown into multi-hundred-billion-dollar sectors, leading the industry towards a new development direction.
• The collapses of projects like Compound, Curve, and Olympus reveal a profound lesson: a model where tokens prop each other up will crumble instantly once external capital inflows dry up.
• DeFi in the past was like a power strip without an external power source; RWA is connecting this circuit to a real external value grid.
• The industry is maturing: using RWA as the value anchor, while gradually establishing mechanisms for collaborative governance and accountability. Initiatives like DeFi United are a typical example of this trend.

1. Yields Decline, Market Grows

Decentralized Finance (DeFi) is no longer a high-yield product.

Since 2022, the spread between DeFi yields and Treasury yields has narrowed to near zero, with occasional yield inversions. As of April 2026, Aave V3's USDC deposit rate is approximately 2.7%, lower than the US Federal Funds Rate (3.5%) and the US 10-year Treasury yield (4.3%).

In the past, users had a clear rationale for taking on risk.

On-chain yields were far superior to bank deposits, offering an unmatched advantage. But now the situation has reversed. If, after accounting for on-chain risks like hacks and stablecoin de-pegging, the actual return in DeFi is lower than traditional financial products, the incentive for ordinary retail users to actively participate in DeFi diminishes significantly.

However, the industry continues to evolve in a new direction. While native DeFi yields are declining, the **Real World Assets (RWA)** and stablecoin markets have deeply integrated with traditional finance, scaling to hundreds of billions of dollars. The influx of institutional capital is the core factor driving this shift.

But institutions often overlook DeFi's history and native community ecosystem, blindly copying the rules and paradigms of traditional finance. Before the mass entry of institutions, DeFi was a market primarily driven by token incentives. Many protocols used incentive mechanisms to gain market recognition and reshaped the industry's operating logic. This model still profoundly influences DeFi today. Aave, a leading protocol born during the DeFi Summer, has become the benchmark interest rate for the entire DeFi industry.

For new institutional participants, a deep understanding of the core market players who have weathered cycles and survived is essential groundwork before entering the market. This article will review the key protocols that shaped the industry's core narratives throughout the complete DeFi development cycle and summarize the lessons the market has learned.

2. DeFi History: From Experiment, Collapse to Reshaping

DeFi was not initially built on promises of token incentives. The starting point was simple: can we lend, borrow, exchange, and stake assets on the blockchain autonomously, without intermediaries?

The early days of the industry were more of a financial experiment. The core value lay in the model itself: lending without banks, asset exchange without centralized exchanges, and any user holding collateral assets can autonomously provide liquidity. But after 2020, the market sentiment shifted rapidly, with token incentives becoming the primary means of attracting capital. A multitude of protocols and innovative ideas emerged, but only a few projects survived the cycles. The industry learned lessons and continuously corrected its development direction through a succession of narratives.

Compound integrated its native token $COMP into its yield incentive system to attract liquidity on a large scale. However, when similar projects replicated this approach, new capital inflows dried up, exposing the structural fragility of its model.

Curve transformed its governance voting mechanism into a battlefield for allocating yield across different pools, turning yield competition into a struggle for protocol control. The market thus realized: DeFi governance can also become a tool for monopolizing power and incentives.

OlympusDAO was the most extreme case. Using exceptionally high Annual Percentage Yields (APY), it attempted to prove the viability of DeFi controlling its own liquidity without external capital. However, the vast majority of its returns came not from real cash flows but from minting new tokens and new capital inflows. Once capital inflows slowed, the price of its governance token, OHM, crashed, and market confidence in the protocol completely collapsed.

These three projects collectively served as a wake-up call for the industry: if the core source of yield is the protocol's native token, the business model will ultimately be unsustainable. This history fundamentally reshaped the understanding of retail users, development teams, and institutional capital towards DeFi.

It was precisely after the burst of this model bubble that new tracks emerged: EigenLayer, Pendle, YBS, and RWA.

2.1. Compound: A Bubble Built on Token Distribution

In June 2020, Compound began distributing its governance token to users, rewarding both depositors and borrowers. During certain phases, COMP rewards even exceeded borrowing costs, creating the peculiar phenomenon where borrowing could be profitable.

This created a new industry paradigm. As users flooded in, transaction fees on the Ethereum network surged, with single transfers often costing tens of dollars. Depositing and borrowing were no longer just financial operations but became tools for yield farming and airdrop hunting, as yield-chasing capital rapidly moved between protocols.

This period is known in the industry as the "DeFi Summer." Projects like Uniswap, Aave, and Yearn Finance rose in succession, solidifying on-chain finance as an independent track. But the model Compound ultimately built was essentially attracting capital through token incentives, which in turn drove up the token price, creating a positive feedback loop. The behavioral pattern of DeFi users, highly sensitive to yields, liquidity, and reward mechanisms, became entrenched during this phase.

2.2. Curve and veCRV: The Beginning of the Curve Wars

Curve initially focused on stablecoin swaps, but the introduction of veCRV fundamentally changed its underlying logic. The longer a user locks their CRV, the more veCRV they receive. veCRV represents voting power, determining the allocation of CRV rewards across different liquidity pools.

Consequently, the core of industry competition shifted from high yields to the power to control yield distribution. Entities holding large amounts of veCRV could direct more token rewards to their preferred pools. Protocols began accumulating veCRV, leading to intense competition—the Curve Wars.

Initially, this mechanism was attractive to both retail users and projects: users earned higher yields for longer lock-ups, while projects could reduce token circulation and direct liquidity to target pools. This lock-to-govern model quickly proliferated across the ecosystem, with notable examples like Balancer's veBAL and Frax's veFXS.

But over time, governance power became concentrated away from ordinary users. Meta-protocols like Convex began aggregating and locking CRV on behalf of users, pooling veCRV voting power in exchange for boosted yields. The Curve Wars escalated, with the main battlefield shifting to Convex.

veCRV ultimately confirmed a core conclusion: control over yield is more attractive than the yield itself. Users delegated their governance power to more efficient intermediaries like Convex. Curve also showed the market that DeFi governance rights themselves can become yield-bearing assets and are prone to centralization and monopolization.

2.3. OlympusDAO: A Golden Age Built on Game Theory

Even after Curve's veToken mechanism, liquidity remained a persistent challenge in DeFi. Externally sourced liquidity would leave as soon as higher incentives appeared elsewhere; such capital was inherently speculative.

OlympusDAO, launched in the second half of 2021, was hailed as a solution to this problem. Its core design had three elements: Protocol Owned Liquidity (POL), where the protocol directly holds its own liquidity; the (3,3) game theory model, suggesting staking and locking is the optimal strategy for all users; and an APY exceeding 200,000% at its peak.

But this model proved unsustainable. OHM's yield was heavily dependent on minting new tokens, not real business cash flows. Its bond mechanism spawned numerous forks and imitators, and the OHM token price eventually crashed by over 90%. This episode fundamentally shifted the mindset of developers and users: before asking "how high can the yield be?", people started prioritizing the question of "where does the yield actually come from?"

2.4. EigenLayer and Pendle: From Horizontal Yield Farming to Vertical Leverage

This crash fundamentally altered retail behavior. The strategy from 2020 to 2022 was straightforward: farm the incentives, then cash out. It was common for the same user to spread capital across multiple protocols simultaneously. That era's farming was horizontal arbitrage: capital flowed quickly between different protocols chasing higher APY.

After 2022, the efficiency of this model plummeted. Token incentive models proved unsustainable, and airdrop competition became increasingly fierce. Simply depositing across multiple platforms yielded diminishing marginal returns. The market sentiment shifted, and capital began seeking multi-layered yield stacking on a single asset: restaking staked Ethereum (stETH), reinvesting Liquid Restaking Tokens (LRTs) into DeFi, and splitting yield ownership to capture points and future potential returns.

EigenLayer and Pendle became the core representatives of this transformation. Starting in 2024, EigenLayer introduced its restaking architecture, allowing already-staked ETH and Liquid Staking Tokens (LSTs) to earn additional rewards. In about six months, its Total Value Locked (TVL) surged from under $400 million to $18.8 billion, clearly demonstrating: capital is moving en masse from simple deposits to restaking.

Pendle splits yield-bearing assets into Principal Tokens (PT) and Yield Tokens (YT). PT represents the principal value, which is nearly principal-protected; YT represents all interest, farming rewards, and points entitlements over the token's lifespan. YT expires worthless but maximizes point and yield capture during its holding period. Even without understanding the underlying complexity, buying YT became a mainstream farming strategy leveraging both time and capital.

The industry strategy thus changed: from sprinkling capital across multiple protocols to focusing on a single asset and stacking multiple layers of yield in a compounding manner.

3. Profit Model Restructuring: RWA and YBS

In the past, projects heavily relied on token incentives to inflate Total Value Locked (TVL). Higher TVL signaled protocol growth, and token prices rose accordingly. But the core flaw persisted: external liquidity was transient and hard to retain.

Today, TVL remains an important metric, but the industry's focus has shifted entirely to: fee revenue, real-world asset backing, and compliance capabilities. The key variable behind this shift is the entry of institutional capital. Institutions conduct rigorous due diligence on the source of yields and the true quality of underlying collateral. A new generation of products is being iterated to simultaneously meet the needs of retail users and institutional compliance requirements.

3.1. Real World Assets (RWA): Institutions Enter the Fray

Since 2024, traditional financial institutions like BlackRock, Franklin Templeton, and JPMorgan have entered the on-chain market via Real World Assets (RWA). Their model involves tokenizing off-chain real-world assets such as US Treasuries, money market funds, private credit, gold, and real estate, and issuing them on the blockchain.

The on-chain RWA market has grown from tens of billions of dollars in 2022 to hundreds of billions as of April 2026. Treasury tokenization and private credit are the primary drivers of this growth.

Currently, leading institutional-grade products include BlackRock's BUIDL and Franklin Templeton's BENJI. While the underlying asset types are similar, their operational models differ: BUIDL is strictly for institutional investors, whereas BENJI has a minimum investment of only $20, open to ordinary US retail investors.

Furthermore, asset management giants like Apollo, Hamilton Lane, and KKR are accelerating the tokenization of private equity and private credit funds in partnership with on-chain issuance platforms like Securitize.

For traditional institutions, the on-chain market is not a completely new frontier but a new asset distribution channel. Consequently, various protocols serving institutional clients are building supporting systems: robust Know Your Customer (KYC) and Anti-Money Laundering (AML) processes, custody infrastructure, multi-jurisdictional legal compliance capabilities, and specialized risk management frameworks.

3.2. Yield-Bearing Stablecoins (YBS): Dollar Assets with Built-in Yield

The most noteworthy sub-sector currently is Yield-Bearing Stablecoins (YBS). YBS are stablecoins that embed a yield mechanism directly into the token itself. Ondo USDY, Sky sUSDS, Ethena sUSDe, and the aforementioned BlackRock BUIDL and Franklin BENJI fall into this category.

Users simply hold these assets to automatically accrue the yield generated by the underlying assets. These underlying assets include US Treasuries, funding rate yields, staking interest, and money market funds. The entire structure essentially represents the migration of traditional Money Market Funds (MMFs) on-chain.

According to StableWatch's Yield PayOut (YPO) data, Ethena sUSDe, Sky sUSDS, BlackRock BUIDL, and Sky sDAI are among the top cumulative yield-paying products in the market. While data may vary slightly across different metrics, it is undeniable: YBS have moved beyond niche experimentation to become a mature sector capable of consistently distributing real interest.

Even so, simply putting money market funds on-chain is not a core differentiating advantage. The true moat lies in composability. BlackRock's BUIDL makes up 90% of the reserves backing Ethena's stablecoin USDtb, and USDtb can then be used as collateral within the Aave lending ecosystem.

In other words, a basic financial product originally serving as an RWA tool has now transformed into a stable underlying component of on-chain finance. DeFi is no longer barely operating on its limited "internal battery"; it is beginning to connect to external real-world value energy.

4. Building the RWA Value Grid: Learning from Past Failures

Before this, DeFi was engaged in one thing: a self-referential circuit of interconnected power strips, optimistically called a growth flywheel.

Layer upon layer of leverage and derivatives were added, creating a closed, self-consistent loop. The fatal flaw was that energy never came from outside; the vast majority of yields were artificially created by self-issued token incentives. Compound used its native token to back lending, and Curve used its token to retain liquidity providers.

On the surface, participants seemed to be fueling each other in a circular flow. In reality, the entire system relied on a single, shared battery with limited capacity. When the market faced a shock, the underlying value collapsed first, cascading upwards, causing the derivative products at the top to fail. This self-referential, self-endorsing model has a natural ceiling to its capacity.

RWA, for the first time, connects this system to a real external value grid. Real economic cash flows, such as bond interest, property rent, and trade receivables, become the stable electricity powering on