The analysis report shows that the on-chain stablecoin market size exceeds $290 billion, with over $8.6 billion deposited in Aave and Morpho to earn interest.Article authors: Cooper Duschang, Tanay Ved
Article translation: Deep潮 TechFlow
DeepChain Summary: On-chain stablecoin assets have surpassed $290 billion, with investors increasingly depositing funds into Aave and Morpho to earn interest, much like purchasing U.S. Treasuries. However, research by Coin Metrics reveals that the same USDC yields vary by up to 159 basis points across different protocols, and often underperforms the one-year U.S. Treasury rate. This report compares on-chain fixed income with U.S. Treasuries and volatile assets on a single table, revealing the true risk premium of stablecoin lending.
Key Points
The stablecoin market size has exceeded $290 billion. On Aave v3 and Morpho, over $8.6 billion has been deposited into lending protocols to earn interest from borrowers.
The same stablecoin may yield different returns across different lending protocols. The USDC lending rates on Aave and Morpho are, on average, 31 basis points lower and 65 basis points higher than the 1-year U.S. Treasury yield, respectively.
Stablecoin interest has not consistently outperformed traditional fixed-income products. However, since 2024, investing in Aave has yielded USDC returns 50 basis points higher than lending ETH, indicating that stablecoins are an effective source of steady income.
Introduction
The U.S. Treasury market trades $1.2 trillion daily. From U.S. Treasuries to junk bonds, fixed-income products are an effective way to earn interest on idle assets. The stablecoin market has grown to over $290 billion. Holders can deposit stablecoins into various on-chain platforms, such as the popular Aave and Morpho lending protocols, to earn yields like traditional financial instruments.
Tokenizing government bonds, corporate bonds, and money market funds on-chain expands opportunities for assets to earn interest or be borrowed. These assets offer competitive interest rates for stablecoins within lending protocols. This expansion should prompt investors to reassess the risk and return profiles of different yield-bearing products.
In this State of the Network, we break down the additional risks of earning on-chain yields, how differences between stablecoins and lending protocols lead to yield divergence, and compare lending stablecoins versus volatile assets.
The boundary between traditional yields and on-chain yields is becoming blurred.
Investors have traditionally invested in short-term Treasury bills and money market funds to earn returns with minimal risk exposure. These investments offer relatively low returns but are considered the safest due to their short maturities and deep liquidity.
On-chain yields include yield-bearing stablecoins, interest earned from stablecoin deposits in DeFi protocols, and tokenized government bonds with attributes similar to traditional fixed-income assets. All are designed to provide low-risk, stable returns backed by trusted institutions and reserves.
On-chain investing offers immediate settlement, programmability, and composability—features difficult to replicate in traditional markets. However, these benefits come with additional risks. Tokenized Treasuries, such as Franklin Templeton’s money market fund (BENJI) or BlackRock’s U.S. Institutional Digital Liquidity Fund (BUIDL), must manage smart contract risks as well as redemption or liquidity risks.
Tokenized Treasuries replicate the yield of the effective federal funds rate, albeit with higher risk. This enables stablecoins and their integration into DeFi to offer new on-chain yield opportunities that compete with traditional products.
The additional complexity and risks of DeFi should incentivize stablecoins to offer higher yields. However, these higher yields are not always available.
The same stablecoin across different lending protocols
On Morpho and Aave v3, lending protocols hold over $8.6 billion in stablecoin deposits. After the KelpDAO attack in April 2026, some analysts argued that the risks investors take in lending pools are not adequately compensated by returns. Stablecoin lenders must consider risks such as stablecoin depegging from fiat, oracle manipulation, and smart contract vulnerabilities. Like traditional fixed-income products, higher-risk investments should offer higher compensation to investors.
The returns on the same stablecoin vary across different lending protocols. Since January 2026, the average yield on USDC deposits has differed by 1.59% between Aave and Morpho. Aave and Morpho have different risk-adjusted returns due to their distinct protocol designs. Morpho supports isolated lending markets for each collateral-borrow pair, resulting in different borrowing and supply rates. Aave, on the other hand, offers the same borrowing and supply rates for assets within each market through a shared pool.
The yield volatility of USDC on the Aave Core USDC lending market highlights its variable return profile compared to traditional fixed-rate products. The USDC yield on Aave has averaged 31 basis points lower than the 1-year U.S. Treasury yield. USDC’s annualized yield on Aave was below the 1-year U.S. Treasury yield for 78% of the time in 2026.
USDC in Morpho v2 vaults offers a median return 65 basis points higher than the 1-year U.S. Treasury yield, but with approximately 3.3 times higher volatility throughout the year. Lending yields are driven by supply and demand and can change at any time, whereas Treasury yields are determined by Federal Reserve policy and tend to shift more gradually.
Different stablecoins on the same lending protocol
Current borrowing rates are designed based on the supply and demand within the pool. Therefore, even with similar reserves, different stablecoins within the same lending protocol can have different yields.
On Aave, USDC and USDT are the two stablecoins with the largest deposit sizes, with an average spread of 90 basis points between them. This is due to differences in their average utilization rates. Over the past 90 days, USDC’s average utilization was 10% higher. The supply rate for PYUSD briefly increased as lenders withdrew available liquidity, raising utilization and consequently increasing rates for both borrowers and lenders.
Morpho also exhibits similar differences. Due to capital shifting to v2 vaults and changes in remaining liquidity affecting market deposits, interest rates in Morpho v1 vaults may be more volatile. In Morpho v2 vaults, the average yields for USDC and USDT differ by 126 basis points. All four stablecoins listed above provide audit attestations, invest in cash and short-term Treasury securities, and support multi-network distribution. However, subtle differences in DeFi integration, regulation, demand, and protocol design lead to varying yield expectations.
How curators and yield-bearing stablecoins expand yield opportunities
On-chain yields are not determined solely by protocol architecture or asset-level factors. Protocol governance and treasury curators also drive on-chain yields. Aave’s governance can adjust borrowing curves based on community assessments of asset risk. Morpho’s yields stem from decisions made by treasury curators, who act like investment managers, allocating deposits across different lending markets to generate returns.
Curators allocate funds across different markets based on risk appetite, highlighting various strategies using the same underlying borrowing asset. Over the past 90 days, the median yield on USDC deposited in the USDC vault was 4.79%. Some high-yield outliers raised the vault’s average yield to approximately 5.31%, indicating that curators can enhance returns without requiring intervention from lending protocols.
Stablecoin issuers can also bypass intermediate lending markets and directly distribute rewards to holders to incentivize adoption. Users can natively stake USDS issued by Sky and GHO issued by Aave to earn governance-managed rewards. Over 66% of circulating USDS is staked as sUSDS, with a current floating rate of approximately 3.52%. Users who stake GHO receive sGHO and a fixed yield of 4.25%.
Stablecoin and Volatile Asset Lending
Although stablecoins carry higher risk for the same yield and struggle to compete with returns from similar assets, they have historically provided more stable returns compared to more volatile lending assets.
If investors deposited assets in 2024 on Aave, the return on USDC exceeded the return from lending ETH. Although ETH achieved an 8.9% price return, its yield from Aave was approximately $940 lower than that of USDC. Only 0.1% of WBTC’s return came from yield, as it was primarily used as collateral; the remaining 86.9% of its return came from price appreciation.
On Morpho, investing in the vaults since 2025 yielded a 4.5% return for the Steakhouse USDT vault, while the Steakhouse ETH vault lost 1.9%. Excluding price returns, Steakhouse USDT still outperformed Steakhouse ETH by 2%.
Stablecoins provide a stable source of yield. However, they do not always deliver competitive returns compared to traditional assets of similar type. Their returns clearly explain why over $8.6 billion in stablecoins have captured on-chain yield.