On-chain Yield Panorama: The Evolution from Interest-bearing Stablecoins to Crypto Credit Products

Author: Turbo, IOSG & James

TL; DR

• Stablecoin-based fixed income products will be more favored in a bear market

• In a bull market, the TVL of all products rises, but in a bear market, performance diverges significantly. Investors tend to prefer more stable returns and lower underlying risks in a bear market, which drives the growth of interest-bearing stablecoins.

• Protocols are evolving towards front-end and back-end development

• Large DeFi protocols are starting to build their own wallets and mobile applications to control traffic entry points. The crypto industry is entering an application era, where retail users can access financial services through mobile applications.

• The demand for proprietary stablecoins from new L1/L2 and DeFi projects will drive interest-bearing protocols towards a "back-end" model, creating significant demand for these protocols.

• Interest rate cuts, declining treasury yields, and the rise of alternative RWA yield sources

• Expected interest rate cuts will lead to a decline in treasury yields. This will encourage stablecoins to incorporate a broader range of RWA assets into their underlying assets.

• Real-world businesses and financial products can become solid sources of yield, even in weaker front-end conditions, providing a unique advantage for these interest-bearing protocols.

I. Current On-chain Yield Landscape

We studied 18 types of on-chain yield products, covering various sources of yield. This includes tokenized treasury bonds and their derivatives, native staking (ETH/SOL), liquid staking tokens (LST) such as Lido and Jito, interest-bearing stablecoins (sUSDe, SyrupUSD), protocol revenue sharing models (JLP, SKY), DeFi strategies and ecosystem incentives (Lido GGV, SIUSD/LIUSD, asBNB), DEX LP (Uniswap), market making (HLP), and RWA products (PRIME, USDai, USP). For each product, this article evaluates dimensions such as APY, liquidity, withdrawal time, and major risks.

▲ Source: IOSG; Data as of November 2025, USP, SIUSD, LIUSD data as of January 2026

▲ Source: Surf Yield Models There are eight different mechanisms for on-chain yield, each with different yields, risks, and sensitivities to market conditions:

Consensus rewards (ETH/SOL staking, LST) provide stable, protocol-level guaranteed yields. Funding rate arbitrage and protocol revenue are influenced by market cycles, strong in bull markets and compressed in bear markets. Lending and RWA yields introduce counterparty risk but are also relatively stable. LPs can capture trading fees. DeFi strategies and ecosystem incentives aggregate yields from multiple protocols while also facing smart contract risks.

Risk Layering Products primarily have the following four dimensions of risk:

• Protocol risk: Technical risks, including smart contract risks.

• Participant risk: Dependence on centralized entities or off-chain participants.

• Strategy risk: Exposure to asset price volatility or strategy issues.

• Liquidity risk: TVL depth and withdrawal mechanisms.

The very low-risk layer includes tokenized treasury bonds and mature lending. Low-risk products such as native staking and liquid staking derivatives introduce smart contract risks, but their code is very mature, making this risk lower. Medium-risk products increase protocol complexity through DeFi strategies aggregation or protocol revenue sharing, while facing risks from token price volatility and yield fluctuations. High-risk products present multiple overlapping risks, with funding rate strategies facing reduced yields in bear markets, market-making vaults facing market manipulation risks, and emerging RWA protocols introducing third-party participants, leading to opacity and limited liquidity issues.

II. Key Conclusions and the Future of On-chain Yield

Stablecoin-based/relatively fixed-rate products are the preferred choice in a bear market. We conducted an in-depth analysis of the TVL and APY performance of different yield products in bull and bear markets. We selected stETH (staking), JitoSOL (staking), sUSDS (lending), WETH/USDT (Uniswap DEX LP), SyrupUSDC (Maple lending), and sUSDE (Ethena funding rate strategy) as representatives of different yield products. The bull market lasted from around June to October, after which the market turned bearish.

▲ Source: DeFiLlama

From the TVL data, all products saw an increase in TVL during the bull market. However, in the bear market, the TVL of stETH, sUSDE, and JitoSOL decreased, while the TVL of sUSDS and SyrupUSDC increased.

▲ Source: DeFiLlama The APY of the WETH/USDT pool and stETH remained relatively stable across different market environments. The APY of JitoSOL, SyrupUSDC, sUSDE, and sUSDS all decreased, with sUSDE and SyrupUSDC experiencing significant declines. The charts also show that products with higher APYs tend to have greater volatility. The APY of sUSDS is more driven by governance than by market forces, thus remaining stable for most of the time.

Overall, stablecoin-based yield products will attract more attention and have higher liquidity in a bear market. Non-stablecoin-supported yield products will face a decline in TVL due to falling underlying asset prices in a bear market. Investors also tend to prefer more stable returns and lower underlying risks, which further drives the growth of interest-bearing stablecoin TVL.

In a bear market, relatively fixed-rate products are a more rational choice. Although sUSDS is not market-driven, its APY remains stable and predictable in the medium term. The APY of sUSDE is too volatile due to market conditions and may decline significantly in a bear market, making it less ideal.

This also indicates that when evaluating on-chain yield opportunities, looking solely at APY does not fully reflect potential returns. The underlying assets play a crucial role in determining actual performance, especially for products like JLP (an index fund composed of SOL, BTC, ETH), asBNB, and SKY. In these cases, token price volatility often exceeds the APY itself, making asset selection as important as yield. However, some investors can mitigate this risk through hedging strategies, such as shorting equivalent underlying assets on CEX or DEX, thereby isolating underlying asset price fluctuations and capturing only the yield.

Protocols are evolving towards front-end and back-end development. In the past, stablecoins were a great cash flow business with a 4% yield from treasury bonds. However, yield-bearing stablecoins are products that share nearly 100% of treasury yields with users, posing challenges to traditional stablecoins. Since 2024, the market share of yield-bearing stablecoins has steadily increased. If we look at the supply of the top three native yield stablecoins and the top three non-native yield stablecoins (USDT, USDC, PYUSD, USDe, USDS, USDY), the market share of native yield stablecoins has risen from 0.1% to 7.6%, peaking at 11.5%.

▲ Source: Artemis

This is why many DeFi protocols are starting to control traffic entry points and attempt to establish their own distribution channels. Many large DeFi protocols are building their own wallets or mobile applications to control entry.

This also indicates a trend: the crypto industry is entering the application era. Retail users can access financial services through mobile applications, which is a more convenient entry point into Web3 for Web2 users. These applications can also provide non-seed phrase services to lower the learning curve.

The demand for proprietary stablecoins from L1 and DeFi projects will become an important catalyst for the future growth of interest-bearing protocols. Interest-bearing protocols may also be pushed towards a "back-end" model.

Given the current supply situation of stablecoins, if all L1 blockchains deploy their own stablecoins instead of relying on USDT or USDC, their revenues could double or triple. This presents a significant incentive for project teams. This trend is already clear, with MegaETH, Jupiter, Hyperliquid, and BNB all working on their own stablecoins, which will create substantial demand for interest-bearing protocols.

Ethena has already recognized this trend. They offer stablecoin-as-a-service, bringing treasury yields to these projects. Protocols and chains can generate considerable stable income streams by deploying their own stablecoins.

▲ Source: DeFiLlama Interest rate cuts, declining treasury yields, and the rise of alternative RWA yield sources The on-chain yield landscape will also change under the influence of U.S. monetary policy.

▲ Source: FOMC

President Trump nominated Kevin Warsh to replace Powell as the Chairman of the Federal Reserve, and if approved, the transition is expected to be completed by May 2026.

The nomination of the new Federal Reserve Chairman is expected to accelerate the interest rate cut process, leading to a decline in U.S. treasury (T-Bill) yields.

▲ Source: FOMC participants' assessments of appropriate monetary policy: Midpoint of target range or target level for the federal funds rate; Dec 10th 2025

This will encourage stablecoins to incorporate a broader range of RWA assets into their underlying assets, thereby diversifying their underlying assets.

Figure's PRIME is a typical case of bringing HELOC yields on-chain. HELOC (Home Equity Line of Credit) is a loan that allows homeowners to borrow against their home, spend, and repay on demand. PRIME token holders fund HELOC loans with a fixed yield of 8%.

▲ Source: Kamino Another category is bringing real-world businesses on-chain as a source of yield. USDai is a way to finance GPUs on-chain. The yield source of USDai comes from the borrower's loan repayments, specifically, monthly repayments from GPU infrastructure operators who obtain financing by collateralizing GPU hardware.

Private credit is also gaining attention, which is an attractive source of solid yield. Projects like Craftt and Pareto allow on-chain users to earn yields by lending assets to institutions and businesses. This type of yield is also supported by solid real-world businesses.

These examples indicate that real-world businesses and financial products can become solid sources of yield. Even in weaker front-end conditions, this can provide a unique advantage for interest-bearing protocols.

Crypto-native yield sources are also becoming increasingly important in a competitive market. Products that offer exclusive yield streams have special value. For example, asBNB provides exposure to Binance Launchpad yields, which are only available within the BSC ecosystem.

Similarly, when revenue-sharing models have transparent revenue fundamentals, these models are also very attractive. The success of JLP and HLP indicates that users are willing to invest funds into products that directly share real protocol revenues. Institutional Adoption of On-chain Yield: End-to-End Services and Crypto Credit Products (Preferred Shares) As the wave of institutional adoption rises, many institutions may attempt to capture on-chain yields or crypto revenues. The key lies in providing end-to-end services. End-to-End Services of DeFi Protocols For example, Ether.fi offers institutional staking services, centered around end-to-end asset management. They provide both non-custodial and custodial staking options, as well as a "white-glove" service, which is an end-to-end staking service that provides a controlled environment, including annual audits, KYC compliance, and monthly reports. The ETH fund is also a CIMA registered fund. In addition to staking, institutions can also participate in DeFi lending and other protocols for fixed income.

Preferred shares are a "treasury bond" based on crypto and an important way to allocate crypto revenues to institutions. DAT's preferred shares as a way for institutions to access on-chain yields are actually underestimated; essentially, this is a type of credit debt asset based on crypto, similar to treasury bonds. Treasury bonds are a type of debt created based on national credit and capacity, while DAT companies create a credit market based on crypto assets, and preferred shares are a type of credit debt product created based on that credit market. Preferred shares provide crypto yields to traditional institutions through dividends. There are mainly two types of yields: long-term CAGR and DeFi yields, including staking.

Strategy's STRC offers an annualized dividend of 11.5%, payable in cash monthly, and can be traded on most mainstream brokerage platforms. Strategy is based on the CAGR of Bitcoin. Its assumption is that BTC is an anti-inflation asset and believes the actual inflation rate is around 8%. STRF and other similar preferred share products like STRD and STRK bring the anti-inflation portion of the yield to investors. Investors can also choose STRK with an 8% yield, with the opportunity to convert to MSTR to capture more upside in Bitcoin.

▲ Base information about STRC; Source: Strategy

Traditional finance has similar anti-inflation products, such as TIPS (Treasury Inflation-Protected Securities). TIPS rise with inflation and fall with deflation. They adjust TIPS based on the CPI (Consumer Price Index) statistics from the U.S. Bureau of Labor Statistics. Although TIPS rates are lower than inflation rates (2.7%), this is the actual yield after inflation, as the principal is adjusted according to the inflation rate, resulting in an actual yield of about 4%.

▲ Interest rate of TIPS; Source: Treasurydirect.gov

Interestingly, stablecoin projects like Saturn Labs are bringing DAT's stable yields on-chain as a source of yield for stablecoins. In the era of digital assets and the Federal Reserve's interest rate cut cycle, this could be an alternative choice for on-chain treasury bonds.

Preferred share dividends can also become a way to allocate aggregated on-chain yields to equity investors. Solana DAT Forward Industries stakes nearly all of its SOL holdings (over 6.87 million SOL) to earn about 7% staking yield. They also convert about 25% of SOL into fwdSOL (LST) to gain greater DeFi liquidity and yield opportunities. Although they have not yet announced that these yields will be allocated to investors through preferred shares, they have the capacity to provide about 7% yield and leverage on-chain protocols to generate higher yields. DeFi Development Company offers Series C perpetual preferred shares with an annualized dividend rate of 10%. Based on current on-chain yield rates and SOL staking rates, they can afford these dividends.