### Introduction to DeFi Yield Generation
Decentralized finance (DeFi) has revolutionized the way individuals and institutions interact with financial services by eliminating intermediaries. In a significant development, a recent analysis conducted by researcher Vadym disclosed that DeFi produced around $8 billion in onchain yield in 2025. This figure marks a crucial benchmark for the DeFi ecosystem, as it showcases both the potential and the challenges that lie within this innovative sector.
The analysis reveals a complex landscape where yield is abundant but not evenly distributed, often circular in nature, and difficult to encapsulate into structured financial products. As the DeFi market matures, understanding these nuances becomes essential for investors and stakeholders alike.
### The Current State of DeFi Yields
Despite generating substantial onchain yield, the landscape of DeFi yields has seen a contraction. Borrowing rates across major lending platforms have aligned closely with the Federal Reserve’s policy rates, signaling a period of normalization post the crypto boom. For instance, stablecoin supply rates have averaged around 3%, falling below traditional safe havens like U.S. Treasuries and the Secured Overnight Financing Rate (SOFR).
On platforms like Aave, the 30-day average yields for USDC and USDT hover around 2%. A staggering 58% of the total value locked (TVL) in stablecoin vaults across Ethereum and its Layer 2 solutions earn less than a 3% annual percentage yield (APY). This decline in yields presents a pressing question for investors: where is the remaining yield coming from, and what are the implications for future investments in DeFi?
### Unpacking the $8 Billion Yield: Sources and Characteristics
The analysis identifies five primary sources of yield in the DeFi space, each characterized by unique risk profiles and scalability challenges. Understanding these sources is crucial for investors aiming to navigate the complexities of DeFi.
#### 1. Automated Market Maker (AMM) Trading Fees
AMM trading fees represent the largest yield source, contributing approximately $4.2 billion to the overall figure. Major platforms like Uniswap, Meteora, and Raydium account for a significant 62% of this total. However, capturing these fees in structured products remains challenging. Liquidity providers (LPs), particularly those utilizing concentrated liquidity, often face losses due to toxic order flow. Consequently, LP-manager vaults have struggled to gain meaningful traction in the DeFi ecosystem.
#### 2. Borrowing Interest
Borrowing interest has generated an estimated $1.76 billion across various money markets, including Aave, Morpho, Spark, Maple, and Fluid. These money markets form the backbone of DeFi, constituting over 60% of total TVL. Notably, about half of the borrowing demand is recursive, with users borrowing to reinvest in other yield sources, such as liquid staking tokens or yield-bearing stablecoins. For instance, on Aave’s Ethereum deployment, around 39% of borrowing demand is directed toward leveraging ETH staking rewards.
#### 3. Perpetual Funding Fees
Funding fees from perpetual contracts, largely pioneered by platforms like Ethena, contributed around $300 million to the yield pool. Ethena’s sUSDe, which derives yield from staking rewards and short funding rates, garnered both praise and criticism when it launched in 2024, highlighting the evolving nature of DeFi products.
#### 4. Real-World Assets (RWAs)
Real-world assets have generated an estimated $600 to $900 million, with U.S. Treasuries holding the largest share of the RWA market at approximately 41%. Private credit comprises another 25%. This diversification into real-world assets indicates a growing trend among DeFi protocols to seek stability and credibility through traditional financial instruments.
#### 5. Network Staking Rewards and Miner Extractable Value (MEV)
The remaining yield comes from network staking rewards and MEV, with Ethereum’s issuance amounting to roughly one million ETH in 2025. However, the portion of staking yield derived from MEV has been trending downward. This decline is attributed to the rise of private order flow routing, which now handles about 90% of swaps, effectively reducing frontrunning opportunities.
### Untapped and Underdeveloped Yield Sources
While the analysis paints a picture of significant yield generation, it also highlights several categories where yield capture remains negligible. For instance, insurance underwriting only generated $5.5 million in premiums in 2025, primarily through Nexus Mutual. Moreover, the options market, despite having a centralized finance (CeFi) open interest of $30–50 billion, recorded just $1.8 billion in onchain open interest with no breakout structured product.
Areas such as volatility selling and protocol risk transfer remain largely untapped, representing potential opportunities for forward-thinking investors as the landscape for risk management evolves.
### Case Study: Sky (Formerly MakerDAO)
To illustrate how protocols can effectively assemble these disparate yield sources, the analysis examines Sky, previously known as MakerDAO. Sky’s 3.75% USDS savings rate has attracted significant capital, leading to a 38% surge in its TVL in March 2025. This growth positions Sky as the fourth-largest DeFi protocol, with the sUSDS savings pool alone accounting for approximately $6.5 billion in deposits.
A closer look at Sky’s income reveals that approximately 70% stems from offchain origination, primarily through USDC earning Coinbase rewards via the peg stability module (PSM) and RWA exposure through products like BlackRock’s BUIDL and Janus Henderson funds. The remaining 30% is sourced from onchain opportunities, with Spark serving as Sky’s primary allocation arm.
### Implications for DeFi and Traditional Finance
The implications of these findings extend beyond the immediate DeFi ecosystem. As traditional finance (TradFi) yields increasingly flow through permissioned channels, the redistribution of these yields occurs onchain, potentially creating a stable floor for DeFi rates. This dynamic sets the stage for the development of a new generation of yield derivatives, including fixed-rate products, interest-rate swaps, and structured tranches.
### Conclusion: A Balanced Perspective
As DeFi continues to evolve, the $8 billion generated in onchain yield in 2025 serves as both a benchmark and a challenge for investors and protocols alike. The landscape is marked by complexity, with a mix of abundant opportunities and significant risks.
Investors must remain informed and adaptable in navigating this dynamic environment, recognizing the importance of diverse yield sources while being mindful of the inherent volatility and complexities of the DeFi market. As the sector develops, there remain untapped opportunities that, if leveraged effectively, could redefine the future of finance.
In summary, while the current yield landscape poses challenges, it also presents a fertile ground for innovation and growth within the DeFi space. As protocols like Sky demonstrate, the integration of offchain and onchain yields could play a pivotal role in shaping the future of decentralized finance, providing investors with new avenues for capital generation and risk diversification.
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