DeFi's Shift to Real-World Assets Reshapes Yield Logic

DeFi was once a power strip without an outlet; RWA connects this circuit to the real external power grid.

Written by: Tiger Research

Compiled by AididiaoJP, Foresight News

The DeFi market spent years layering yield upon yield, attracting massive capital with high-return yields. Now, DeFi is integrating real-world assets (RWA) as its true yield network.

• The USDC deposit rate on Aave V3 is 2.7%, below the U.S. 10-year Treasury yield of 4.3%. The baseline yield in DeFi is declining.
• The market hasn't died; yields have declined, but RWA and stablecoins have grown into multi-billion-dollar markets and are evolving in new directions.
• The failure of Compound, Curve, and Olympus shares a common lesson: any structure that uses one token to support another collapses once external capital stops flowing in.
• DeFi was once a power strip without an outlet; RWA connects this circuit to the real external power grid.
• The market is maturing. It is anchoring to real-world assets (RWA) and showing signs of coordinated accountability, as evidenced by initiatives like DeFi United.

DeFi is no longer just a high-yield product.

Since 2022, the spread between DeFi and government bonds has narrowed to near zero, and at times even inverted. As of April 2026, the USDC deposit rate on Aave V3 is approximately 2.7%, below the federal funds rate (3.5%) and the U.S. 10-year Treasury yield (4.3%).

In the past, taking on risk had clear justification.

On-chain yields were once much higher than bank deposits. That is no longer the case. If DeFi returns—after accounting for all on-chain risks such as hacks and depegging events—are lower than those in traditional finance, retail users have less incentive to actively participate in DeFi.

However, the market itself is growing in different directions: DeFi yields have declined, but the RWA and stablecoin markets are integrating with traditional finance and expanding to hundreds of billions of dollars. Institutional entry has played a crucial role in this shift.

However, institutions often overlook DeFi’s history and existing community, fully importing traditional finance practices. Before institutions entered, DeFi was a market driven by incentives—some protocols gained market recognition through incentive strategies and thereby transformed market paradigms. This model still exists in DeFi today, and Aave, which rose to prominence during DeFi Summer, has now become the benchmark rate provider for DeFi protocols.

Understanding the participants who remain in the market is an essential foundational step for new institutional entrants. This article traces the protocols that have shaped defining narratives throughout the DeFi lifecycle and the lessons the market has learned from them.

DeFi was not originally built on a market based on incentive promises. The starting point was simple: “Can we lend, trade, and use assets as collateral on a blockchain without intermediaries?”

In its early stages, it was more like a financial experiment. The key fact was this: no bank loans, no exchange trading—anyone with collateral could create liquidity. But after 2020, the market rapidly shifted in another direction. Token incentives became the primary mechanism for attracting capital. Countless protocols and ideas emerged, but only a few survived. The market learned from each narrative and continuously adjusted its course.

Compound incorporated its native token (COMP) into yield incentives to attract large-scale liquidity. However, when other projects replicated the same model, new capital inflows dried up, exposing underlying structural vulnerabilities.

@CurveFinance turned governance voting into a competition over which pool receives rewards, transforming reward competition into a battle for protocol control. The market has come to realize that DeFi governance can also become a target for power and incentive monopolization.

@OlympusDAO is the most extreme example. It demonstrated the possibility of DeFi achieving its own liquidity without relying on external capital, through extremely high APYs. However, most of its returns depended on new token issuance and new capital inflows, rather than actual cash flow. When inflows slowed, the price of its governance token, OHM, and confidence in the protocol collapsed simultaneously.

The market learned from these three cases that: “When the source of returns is the protocol’s own token, this structure is not sustainable.” This lesson has changed how users, builders, and institutions view DeFi.

In this gap, new movements are emerging: EigenLayer, Pendle, YBS, and RWA.

Compound: A bubble built on token distribution

In June 2020, Compound began distributing its governance token, COMP, to users. Both depositors and borrowers received token rewards. At certain times, the COMP rewards even exceeded borrowing costs, creating a situation where users could profit by borrowing.

This is a new paradigm. As users flooded in, Ethereum gas fees surged, making it common to pay dozens of dollars for a single transaction. Deposits and loans were no longer simple financial actions but became tools for earning airdrop rewards, with yield-seeking capital rapidly moving between protocols.

This period was known as DeFi Summer. Uniswap, Aave, and Yearn Finance emerged successively, solidifying on-chain finance as an independent market. However, Compound ultimately created a structure that attracted capital through token-based incentives, with that capital then driving up token prices. Today’s DeFi users’ keen sensitivity to yields, liquidity, and reward structures was shaped during this time.

Curve and veCRV: The Beginning of the Curve War

Curve was initially designed as a stablecoin exchange. However, the introduction of veCRV fundamentally transformed its nature: the longer users lock up their CRV, the more veCRV they receive, and veCRV grants voting power over gauge weight allocations, determining how CRV rewards are distributed across various pools.

From this point on, the focus of competition shifted from the rewards themselves to the power to direct those rewards. Those with more veCRV could channel more incentives toward their own pools. The protocol naturally began competing to accumulate veCRV, and this competition evolved into the Curve Wars.

Initially, this structure appealed to both retail users and builders: retail users earned higher rewards the longer they locked their tokens, while builders could reduce circulating supply and direct liquidity toward targeted pools. This is why similar models have spread throughout the ecosystem, including Balancer’s veBAL and Frax’s veFXS.

However, over time, this power did not remain in the hands of individual users. Meta-protocols like Convex aggregate and lock up CRV on behalf of users to provide enhanced yields in exchange for accumulating veCRV voting power. The Curve Wars expanded to include Convex as a new battleground.

veCRV ultimately proved that control over yields is more incentivizing than the yields themselves. Users do not hold this power directly but instead delegate it to more efficient intermediaries like Convex. Curve revealed that governance rights in DeFi can themselves become yield-generating assets—and these rights are prone to centralization.

OlympusDAO: A Golden Age Built on Game Theory

Even after the introduction of Curve’s veToken mechanism, liquidity remains DeFi’s most persistent challenge. Liquidity from external sources leaves as soon as better incentives arise. This is mercenary capital.

In the second half of 2021, OlympusDAO emerged as a solution and garnered attention. Its core consists of three elements: Protocol-Owned Liquidity, a (3,3) game theory framework (which posits that the optimal outcome occurs when all participants choose to stake), and an extreme APY exceeding 200,000% at launch.

But this structure did not last. OHM’s returns heavily relied on new token issuance rather than real cash flow. The mechanism spawned dozens of similar projects, but OHM’s price eventually dropped by more than 90%. Afterward, builders began asking, “Where do the yields actually come from?” before asking, “How high can the yield go?”

EigenLayer and Pendle: From Horizontal Deposits to Vertical Leverage

The crash reshaped retail user behavior. The playbook from 2020–2022 was simple: claim airdrops first, then exit. It was common for individual users to spread their funds across multiple protocols simultaneously. Airdrop returns during that era were horizontal—capital flowed between protocols in pursuit of higher APYs.

After 2022, this approach lost its efficiency. Token incentives proved unsustainable, and competition for airdrops intensified. Returns from simply depositing across multiple platforms began to diminish. Capital began shifting toward stacking multiple layers of yield from a single asset: restaking stETH, redeploying LRTs into DeFi, and splitting yield rights to capture points and future rewards.

EigenLayer and @pendle_fi are at the center of this shift. Starting in 2024, EigenLayer introduced the restaking mechanism, enabling staked ETH and LSTs to generate additional rewards. EigenLayer’s TVL grew from under $400 million to $18.8 billion in approximately six months, clearly demonstrating that capital is rapidly shifting from simple deposits to restaking.

Pendle splits yield-bearing assets into PT and YT. PT represents a claim close to the principal, while YT captures all yields, rewards, and points accrued before maturity. YT expires to zero at maturity, but prior to that, it can extract maximum points and returns. Even without a deep understanding of the structure, purchasing YT has become a strategy to leverage time and capital for airdrops.

The strategy shifts from diversifying capital across multiple protocols to stacking multiple rewards from a single asset.

Builders previously focused on driving TVL through token incentives. As TVL grew, the protocol appeared to be expanding, and the token price rose accordingly. However, the issue was that liquidity never stayed for long.

TVL remains an important metric, but the focus has shifted toward fee-based revenue, real asset backing, and regulatory readiness. The reason is the emergence of a new variable: institutions. Institutions will more rigorously question where the yields come from and what assets support them.

The product is evolving to meet both of these demands simultaneously.

RWA (Real-World Assets): Institutional Entry Begins

Since 2024, traditional financial institutions such as @BlackRock, @FTI_US, and @jpmorgan have entered the on-chain market under the banner of RWA, tokenizing off-chain assets like government bonds, money market funds, private credit, gold, and real estate, and distributing them on-chain.

The on-chain RWA market has grown from billions of dollars in 2022 to hundreds of billions by April 2026, with tokenized government bonds and private credit serving as the primary growth drivers.

The dominant institutional products in the market today are BlackRock’s BUIDL and Franklin Templeton’s BENJI. Both BUIDL and BENJI cover similar asset types but differ in their approach. BUIDL is primarily targeted at institutions, while BENJI is accessible to U.S. retail investors with a minimum investment of $20.

In addition, Apollo, Hamilton Lane, and KKR are collaborating with on-chain issuance platforms like Securitize to accelerate the tokenization of private funds and private credit.

For institutions, the on-chain market is less a new frontier to explore and more a new distribution channel. As such, protocols serving institutions are building the necessary KYC and AML frameworks, custody infrastructure, legal jurisdiction coverage, and risk management systems.

Yield-Bearing Stablecoin (YBS): USD with Built-In Yield

A noteworthy subsector is YBS—Yield-Bearing Stablecoins. These are stablecoins that embed yield directly into the token itself. Examples include Ondo USDY, Sky sUSDS, Ethena sUSDe, as well as BlackRock’s BUIDL and Franklin’s BENJI mentioned earlier.

Simply holding these assets accumulates the underlying yields. The underlying assets include U.S. Treasuries, funding rates, staking interest, and money market funds. This structure closely mirrors the migration of traditional finance money market funds (MMFs) to the blockchain.

According to YPO data from @stablewatchHQ, Ethena sUSDe, Sky sUSDS, BlackRock BUIDL, and Sky sDAI rank among the top products in terms of cumulative yield payments. Although each product calculates yields differently, YBS has clearly evolved from a niche experiment into a category where real interest is being distributed.

However, simply porting MMFs on-chain does not, by itself, create differentiation. The real differentiation lies in composability. BUIDL makes up 90% of Ethena USDtb’s reserves, and USDtb is used as collateral on Aave.

In other words, what was once a foundational product for real-world assets (RWA) has now become a stable structural component. This market no longer operates solely on its limited internal battery—it has begun drawing power from external sources.

Players building the RWA network learn from past failures.

Until now, DeFi has been plugging power strips into each other and calling it a flywheel.

Layers upon layers of power strips, finally plugged into leverage and derivatives—but the problem is, the electricity comes from the future. It’s primarily token incentives generated by the protocols themselves: Compound creates loans using its own token, and Curve uses its own token to retain liquidity providers.

It appears that each is powering the other, but in reality, this is a structure running on a shared, limited battery. When the market fluctuates, voltage drops from the bottom up, and the furthest products begin to shut off. A self-referential power strip has a limited capacity to handle load.

RWA connects this structure to real-world power grids for the first time. Cash flows generated by the real economy—such as bond interest, real estate rental income, and trade receivables—become the current in on-chain finance. Interest rates are not determined by internal token incentives, but by external market demand, interest rates, and credit risk.

Once current begins to flow, financial functions such as issuance, custody, collateralization, lending, and settlement can be sequentially connected on top of it. Financial products that were difficult to design in traditional DeFi become feasible on this power network. The question is no longer how many more outlets to plug in, but how stable a current can be drawn from it.

This is the core of on-chain RWA: bringing assets with real underlying value onto the blockchain and attaching financial functionalities to the cash flows they generate. While traditional DeFi has relied on token incentives as a temporary battery to borrow liquidity, today’s RWA market is striving to retain liquidity through the cash flows generated by the assets themselves.

Today, market participants are each building this power network from their own positions.

• Theo decides which assets to connect to the blockchain, selecting those that will serve as power sources.
• Plume builds the infrastructure for asset issuance and distribution, laying down the transmission lines and switching systems that enable the flow of value.
• Morpho uses these distributed assets as collateral to build lending and collateral markets. It is the first financial device on this power network to actually draw power.

No single player owns the entire grid. The new financial circuit called on-chain RWA is only complete when power generation, transmission networks, and points of use are all connected.

Case Study: Repositioning the Customer Base

@Theo_Network is a case study that rebuilds its customer base starting from asset selection.

Theo's flagship product was once the Strategy Vault. But as the market evolved, the needs of retail users began to diverge from those of institutions. Theo embraced this shift and completely redefined its customer base.

The core product is thBILL, an institutional-grade basket of tokenized U.S. Treasury bills issued by regulated issuers, designed to generate stable yields as the foundational asset within the Theo ecosystem. The roadmap subsequently includes thGOLD, with thUSD (a YBS collateralized by thGOLD) also set to launch soon.

What’s changing goes beyond the product. It shows that a player starting with retail incentives can also be designed to speak the language of institutions.

Plume: Building the environment for RWA to operate

@plumenetwork is an example of bundling asset distribution infrastructure with upper-layer demand.

For institutions, simply tokenizing assets is not enough—they need end-to-end infrastructure spanning issuance, compliance, distribution, and yield productization. For on-chain users, accessing institutional-grade assets such as government bonds and funds requires supported product structures.

Nest is a yield protocol built on the Plume infrastructure. It packages yields from institutional-grade RWA into a format accessible to users by depositing stablecoins. Each vault—including nBASIS, nTBILL, and nWisdom—offers yields backed by different real-world assets, and vault tokens can be freely moved and traded within DeFi.

WisdomTree has launched 14 tokenized funds, Apollo Global has deployed a $500 million credit strategy, and Invesco has migrated a $6.3 billion senior loan strategy to Plume. Nest serves as the access point for demand for these institutional assets.

In addition to its own ecosystem, Plume serves as an integrated infrastructure, creating distribution channels between institutional assets and on-chain demand.

Morpho: Add financial capabilities to institutional assets

@Morpho is an example of converting assets into collateral, loans, and liquidity.

For institutions, registering assets on-chain is only the beginning. What matters is whether these assets can be used as collateral and whether liquidity can be extracted from them. Loan terms and risk parameters must be clearly defined, and execution must be feasible within custodial and compliance frameworks.

A leading example is Apollo ACRED. Apollo not only deploys its credit strategy on Plume but also enables ACRED to be used as collateral on Morpho, allowing holders to borrow stablecoins while maintaining their fund positions. ACRED is a tokenized private credit fund based on the Apollo Diversified Credit Securitize Fund, issued on-chain via Securitize.

Institutional assets become usable materials for on-chain finance only when they can serve as collateral, generate loans, and create liquidity.

Looking back, the golden age of decentralized finance (DeFi) was more akin to a mirage built on token incentives and leverage.

Some corners of the market remain skeptical about DeFi’s potential for recovery, pointing to a series of hacking incidents.

However, the recent Kelp DAO rsETH incident and the formation of DeFi United tell a surprisingly different story, contrary to the above perspective. As of April 28, 2026, Aave and DeFi United have successfully raised over $300 million, surpassing the $190 million drained in the exploit.

This indicates that the market is developing trust infrastructure and more mature shared accountability models.

DeFi’s history shows that it was once a market with no accountability. Users’ sole goal was to quickly earn high-yield tokens, and builders designed yield mechanisms to match this demand, often abandoning projects after reaching their funding goals.

But the market is now shifting toward a model where accountability must be intentionally designed into the system. It is not yet a complete financial system, but it is clear that a movement has emerged to identify common issues and allocate losses and responsibilities.

Many people feel the market is no longer viable not only due to security concerns, but also because of the disappearance of instant rewards and yields, as well as a lack of any new narratives or catalysts.

The term "DeFi" is losing its power over time. The market has fragmented under more specific labels: lending, stablecoins, RWA, restaking, on-chain credit.

The words themselves are not important. The experiments initiated from them are maturing into structures that enable more assets to truly engage in productive activities.