Tiger Research: DeFi Yields Decline, What Real Value Does RWA Offer?

Core Takeaways

• This report is written by Tiger Research. The USDC deposit rate on Aave V3 is currently 2.7%, lower than the 4.3% yield of the US 10-year Treasury bond. The short-term dividends DeFi once enjoyed from speculation are fading.
• The market is not dead. While yields are generally declining, Real World Assets (RWAs) and stablecoins have grown into a multi-hundred-billion dollar sector, propelling the industry in a new development direction.
• The failures of projects like Compound, Curve, and Olympus reveal a profound lesson: a model where tokens mutually prop each other up will collapse instantly once external incremental capital flow dries up.
• The old DeFi 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: anchoring value with RWAs while gradually establishing mechanisms for collaborative governance and accountability, exemplified by initiatives like DeFi United.

1. Yields Decline, the Market Grows

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

Since 2022, the spread between DeFi yields and Treasury yields has been narrowing to near zero, and has even inverted at times. As of April 2026, the USDC deposit rate on Aave V3 is approximately 2.7%, lower than both the US Federal Funds Rate (3.5%) and the US 10-year Treasury yield (4.3%).

In the past, there was a clear logic for users taking on risk: the returns were demonstrably higher.

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

However, the industry is continuously developing in new directions. As native DeFi yields decline, **the Real World Asset (RWA) and stablecoin markets, deeply integrated with traditional finance, have grown to a scale of hundreds of billions of dollars.** The entry of institutional capital is the core factor driving this shift.

Yet institutions often overlook DeFi's history and native community ecosystem, instead seeking to replicate the rules and paradigms of traditional finance. Before the massive influx of institutions, DeFi was a market primarily driven by token incentives. Numerous protocols used incentive mechanisms to gain market recognition, reshaping the industry's operational logic. This model still profoundly influences DeFi today. Aave, a leading protocol born during the "DeFi Summer," has now become a benchmark interest rate barometer 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 homework before entering the space. This article will review the key protocols that shaped the industry's core narratives throughout the complete cycle of DeFi development and summarize the lessons the market has learned.

2. DeFi History: From Experimentation, to Collapse, to Reshaping

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

The early days were more of a financial experiment. The core value lay in the model itself: lending without banks, asset exchange without centralized exchanges, and liquidity provision by any user holding collateral. But after 2020, the market rapidly shifted. Token incentives became the primary tool to attract capital. A flood of protocols and novel ideas emerged, but only a few projects survived the cycles. The industry learned lessons and corrected its direction through successive narrative shifts.

Compound integrated its native token, $COMP, into its yield incentive system, thereby attracting massive liquidity. However, when similar projects replicated this playbook, the inflow of new capital dried up, exposing the structural fragility of the model.

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

OlympusDAO was the most extreme case. With ultra-high Annual Percentage Yields (APY), it attempted to validate the feasibility of DeFi owning and controlling its own liquidity without relying on external capital. However, the vast majority of its yield came not from real cash flow, but from minting new tokens and staking new deposits. Once capital inflows slowed, the price of its governance token, OHM, crashed, and market confidence in the protocol completely disintegrated.

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 completely 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 RWAs.

2.1. Compound: A Bubble Builts on Token Distribution

In June 2020, Compound began distributing governance tokens to users, rewarding both depositors and borrowers. During certain periods, COMP rewards even exceeded borrowing costs, creating the peculiar phenomenon of profiting by borrowing money.

This pioneered a new industry paradigm. As users flooded in, transaction fees on the Ethereum network skyrocketed, with single transfer fees often reaching tens of dollars. Depositing and borrowing were no longer mere financial operations; they became tools for "yield farming" and earning rewards, with capital chasing high yields rapidly moving between different protocols.

This period is known in the industry as "DeFi Summer." Projects like Uniswap, Aave, and Yearn Finance rose in succession, solidifying on-chain finance as a legitimate standalone sector. However, the model Compound ultimately built was essentially a positive feedback loop: using token incentives to attract capital, and then using the influx of capital to inflate the token price. DeFi users' current behavioral traits—being highly sensitive to yields, liquidity, and reward mechanisms—were gradually formed and solidified during this phase.

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

Curve initially was just a stablecoin-focused exchange platform, but the introduction of veCRV completely rewrote its underlying logic. The longer users locked their CRV, the more veCRV they received. veCRV represented voting power, which could determine the allocation of CRV rewards across different liquidity pools.

From that point, the core of industry competition was no longer the level of yield, but the power to control yield distribution. Entities holding large amounts of veCRV could direct more token rewards to their own liquidity pools. Major protocols began accumulating veCRV, engaging in fierce competition, and the Curve Wars officially began.

Initially, this mechanism was attractive to both retail users and projects: retail users earned higher rewards for longer lock-ups; projects could reduce token circulating supply and guide liquidity to target pools. Consequently, similar locking and governance models quickly spread across the ecosystem, exemplified by Balancer's veBAL and Frax's veFXS.

But over time, governance power no longer resided with ordinary users. Meta-protocols like Convex began aggregating and locking CRV on behalf of users, centralizing veCRV voting power in exchange for enhanced yields. The Curve Wars escalated, with the main battlefield shifting to Convex.

veCRV ultimately proved a core conclusion: the right to control yield is far more attractive than yield itself. Users no longer held governance power directly but delegated it to more efficient intermediaries like Convex. Curve also showed the market: DeFi governance rights themselves can become yield-bearing assets, and such power is prone to centralization and monopolization.

2.3. OlympusDAO: A Golden Age Built on Game Theory

Even after Curve's veToken mechanism, liquidity remained DeFi's most persistent long-term problem. Externally sourced liquidity would immediately leave if higher incentives appeared elsewhere – it was essentially speculative, profit-seeking capital.

OlympusDAO emerged in the second half of 2021 and was hailed as a potential solution. Its core design included three elements: Protocol Owned Liquidity (POL), where the protocol directly held its own liquidity; the (3,3) game theory model suggesting that all users staking and locking was the optimal collective outcome; and an ultra-high APY, exceeding 200,000% in its early stages.

But this model was ultimately unsustainable. OHM's yield was heavily dependent on token minting, not real business cash flow. Its bond mechanism spawned numerous forks and copycat projects, and the OHM price eventually crashed over 90%. This event fundamentally shifted the mindset of developers and users: before asking "how high can the yield be," people began to scrutinize the true source of the yield.

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

This crash completely changed retail user behavior. Between 2020 and 2022, the playbook was simple: farm the incentives first, then cash out. It was common for the same user to spread capital across multiple protocols simultaneously. That era of farming was a horizontal arbitrage: capital moving 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 trend shifted. Capital began seeking multi-layered yield stacking on a single asset: restaking staked ETH (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 a restaking framework, 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 massively shifting from simple deposits to the restaking track.

Pendle splits yield-bearing assets into Principal Tokens (PT) and Yield Tokens (YT). PT represents near-principal-guaranteed rights; YT encompasses all future interest, farming rewards, and point rights until maturity. While YT becomes worthless upon maturity, holding it maximizes the capture of points and yield during its term. Even without understanding the underlying complex mechanisms, buying YT evolved into a popular farming strategy that simultaneously utilizes time and capital leverage.

The industry strategy was thus rewritten: from spreading capital thinly across multiple protocols to focusing on a single asset and stacking multiple layers of yield for compounding returns.

3. Profit Model Restructuring: RWA and YBS

In the past, projects heavily relied on token incentives to inflate their Total Value Locked (TVL). As TVL grew, the protocol appeared to expand, and its token price would also rise. But the core flaw persisted: external liquidity came and went easily, failing to stick.

Today, TVL remains an important industry metric, but the industry's focus has shifted entirely towards: fee revenue, real asset backing, and compliance capabilities. The key variable behind this shift is the entry of institutional capital. Institutions will rigorously scrutinize the source of yield and the true quality of underlying collateral assets. A new generation of products is being iterated and upgraded, simultaneously catering to retail needs 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 operational model involves tokenizing off-chain real-world assets such as US Treasuries, money market funds, private credit, gold, and real estate, and distributing them on the blockchain.

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

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

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

For traditional institutions, the on-chain market is not a completely new frontier, but a new distribution channel for assets. Therefore, various protocols serving institutional clients are building the necessary supporting infrastructure: compliant KYC/AML mechanisms, custody solutions, multi-jurisdictional legal adaptability, and professional risk management frameworks.

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

One of the most noteworthy tracks currently is Yield-Bearing Stablecoins (YBS). A yield-bearing stablecoin is a stablecoin product with a yield mechanism embedded directly into the token itself. Ondo USDY, Sky sUSDS, Ethena sUSDe, and the aforementioned BlackRock BUIDL and Franklin BENJI all fall into this category.

By simply holding these assets, users automatically accumulate the yield generated by the underlying assets. These underlying assets include US Treasuries, funding rate arbitrage, staking yields, and money market funds. The entire structure essentially represents the migration of traditional Money Market Funds (MMFs) onto the blockchain.

According to StableWatch's Yield PayOut (YPO) data, Ethena sUSDe, Sky sUSDS, BlackRock BUIDL, and Sky sDAI are among the top products in terms of cumulative interest payouts. Although figures may vary slightly depending on the calculation method, there is no doubt that yield-bearing stablecoins have moved beyond the experimental stage and matured into a track capable of consistently delivering real interest.

However, simply putting a money market fund on-chain does not constitute a core competitive advantage. The real moat lies in composability. BlackRock's BUIDL constitutes 90% of the reserves for Ethena's USDtb, and USDtb can in turn be used as collateral within the Aave lending ecosystem.

In other words, basic financial products originally conceived as RWA tools have now transformed into stable underlying components for on-chain finance. DeFi is no longer running on a limited "internal battery"; it is starting to plug into an external source of real value.

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

Before this, DeFi was fundamentally doing one thing: creating a self-referential, nested circuit of power strips, beautifying it under the term "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 the outside; most returns were artificially created by the protocol's own token incentives. Compound relied on its native token to back lending, while Curve used its own token to retain liquidity providers.

On the surface, everyone supplied each other, creating a circular flow. But in reality, the entire system relied on a