The first quarter of 2025 tells a clear story of defense development. While the yields across larger lending platforms have been compressed significantly, innovation at the market’s edges demonstrates defice continued maturation and growth.

The large yield of compression

Defi yields have dropped sharply across all major lending platforms:

• Vaults.Fyi USD Benchmark has fallen below 3.1%, during the US 1-month T-Bill yield of ~ 4.3% for the first time since the end of 2023. This benchmark, a weighted average of four leading markets, approached 14% at the end of 2024.
• Spark has implemented four falls in a row in 2025 alone. From the 12.5%year rates were reduced to 8.75%, then 6.5%and now sit at 4.5%.
• AAVES STABLECOIN yield on Mainnet is about 3% for USDC and USDT, levels that would have been considered disappointing just months ago.

This compression signalizes a market that has cooled significantly from the end of 2024’s overflow, with dim demand for borrower across larger platforms.

Tvl -paradox: growth in spite of lower yields

Despite declining yields, larger stableecoin vault has experienced extraordinary growth:

• Overall, the largest vaults on Aave, Sky, Ethena and Compound are almost quadrupled in size in the last 12 months and expanded from approx. $ 4 billion to approx. 15 billion dollars in the supply side deposits.
• Despite Spark’s cuts in the order, Tvl has grown more than 3x from the beginning of 2025.

As the yield has fallen from almost 15% to less than 5%, capital has remained sticky. This seemingly conflicting behavior reflects rising institutional comfort with defi protocols such as legitimate economic infrastructure rather than speculative vehicles.

The increase of curators: Defice new asset managers

The emergence of curation represents a significant shift in defi loan. Protocols such as Morpho and Euler have introduced curators that build, manage and optimize lending.

These curators act as a new race of DEFI capital managers, evaluating markets, setting risk parameters and optimizing capital allocations to deliver improved yields. Unlike traditional service providers who simply advise protocols, curators actively manage capital installation strategies across different lending options.

On platforms such as Morpho and Euler, curators handle risk management features: Choosing which assets can serve as security, set appropriate loan-to-value conditions, select Oracle Price feeds and implement supply caps. They build essentially targeted lending strategies that are optimized for specific risk salary profiles that sit between passive lenders and sources of dividends.

Companies such as Gauntlet, former service providers for protocols such as Aave or Compound, now manage directly almost $ 750 million in Tvl across multiple protocols. With performance fees ranging from 0-15%, this potentially represents millions in annual revenue with significantly more upside than traditional service schemes. In pr. Morpho -Dashboard has curators cumulatively generated almost 3 million in revenue and based on Q1 revenue is on the way to make 7.8 mm in 2025.

The most successful curator strategies have first and foremost maintained higher yields by accepting higher exploited collateral for more aggressive LTV conditions, especially utilizing the commute-lp tokens. This approach requires sophisticated risk management, but delivers superior return in the current compressed environment.

As concrete examples, the yields have the greatest USDC vaults on both Morfo and Euler surpassed the vaults. FYI-BENCHMARK, which shows 5-8% basic yield and 6-12% yield including token reindeer.

Protocolstratification: A layered market

The compressed environment has created a clear market structure:

1. Blue-Chip Infrastructure (Aave, Compound, Sky)

• Feature similar to traditional money market funds
• Offer modest yields (2.4-6.5%) with maximum security and liquidity
• Have caught the brother party of the tvl growth

2. Infrastructure optims and strategy providers

• Basic layer optimizers: Platforms like Morpho and Euler provide modular infrastructure that enables greater capital efficiency
• Strategy providers: Specialized companies such as MEV Capital, Smokehouse and Gauntlet are based on these platforms to deliver higher yields up to 12% on USDC and USDT (at the end of March)

This two-layer relationship creates a more dynamic market where strategy providers can quickly iterate about yield options without building core infrastructure. The yields that are ultimately available to users depend on both the effectiveness of the basic protocol and the refinement of strategies implemented on top.

This restructured market means that users are now navigating in a more complex landscape where the relationship between protocols and strategies determines the yield. While blue-chip protocols offer simplicity and security, the combination of optimization of protocols and specialized strategies provides yields comparable to what previously existed on platforms such as Aave or composition under high-speed environments.

Chain for chain: where yields live now

Despite the spread of L2s and alternative L1s, Ethereum Mainnet continues to host many of the top yield options, both inclusive and exclusive tokenincitaments. This persistence of Ethereum’s yield advantage is remarkable in a market where incentive programs have often changed the yield-seeking capital to newer chains.

Among ripe chains (Ethereum, arbitum, base, polygon, optimism), the yields remain depressed everywhere. Outside of the mainnet, most of the attractive yield options are concentrated on the base, suggesting its new role as a secondary yielding point.

Newer chains with significant incentive programs (such as Berachain and Sonic) show increased yields, but the sustainability of these rates remains questionable as incentives eventually tapered.

Defi Mullet: fintech in front, defi in back

Significant development this quarter was Coinbas’s introduction of Bitcoin-collateralized loans powered by Morpho on its basic network. This integration represents the new “Defi Mullet” thesis -fintech boundary surfaces in the front, defi -infrastructure in the back.

As Coinbas’s head of consumer products, Max Branzburg has noticed: “This is a moment when we plant a flag that Coinbase comes on the chain and we bring millions of users with their billions of dollars.” The integration brings Morpho’s lending functions directly in Coinbase’s user interface, allowing users to borrow up to $ 100,000 in USDC against their Bitcoin Holdings.

This approach is the view that billions will eventually use Ethereum and Defi protocols without knowing it – just as they use TCP/IP today without attention. Traditional Fintech companies will increasingly adopt this strategy and keep well -known interfaces while exploiting defense infrastructure.

Coinbase implementation is particularly remarkable for its full circle in the Coinbase Ecosystem: Users post BTC Collateral to Mint CBBTC (Coinbase’s wrapped Bitcoin on the base) and borrows USDC (Coinbase’s StableCoin) on Morpho (a Coinbase-Fusted Lending Platform) Layer 2 Network).

Looking forward: Catalysts to the lending market

More factors could reshape the lending landscape through 2025:

• Democratized curation: When curate models mature, AI agents in crypto could eventually enable everyone to become their own curator? While still early, progress in automation of the chain suggests a future in which customized risk bevering optimization becomes more accessible to retail users.
• RWA integration: The continued development of the real world integration could introduce new yield sources that are less correlated with crypto market cycles.
• Institutional adoption: The scaling institutional comfort with defi -infrastructure suggests growing capital flows that can change lending dynamics.
• Specialized lending niches: The advent of highly specialized lending markets targeted at specific user needs in addition to simple dividend generation.

The protocols best placed to thrive will be those that can function effectively across the risk spectrum serving both conservative institutional capital and more aggressive yields through increasingly sophisticated risk management and capital optimization strategies.