In recent years, decentralized finance (DeFi) platforms have attracted attention by offering crypto investors high returns beyond traditional finance. However, it has been observed that the return rates in DeFi protocols have decreased rapidly recently. It is stated that the rates offered on the largest protocols, especially Aave, fall below the passive income yield offered on many traditional financial platforms. This transformation calls into question the “high risk-high return” balance that stands out as the most important promise of DeFi.
Why did DeFi returns decline?
Users depositing USD stablecoins on leading lending platforms like Aave in 2021 and 2022 were interested in annual rates of over 20 percent. However, as of 2026, Aave only provides an annual return of around 2.61 percent on USDC deposits. This rate is below the 3.14 percent offered by Interactive Brokers, which many investors use. The return on Aave’s largest USDT pool is 1.84 percent. While Lido’s stETH pool brings 2.53 percent, Ethena’s USDe has dropped to 3.47 percent.
Ethena, which once made a name for itself with its returns, attracted billions of dollars of deposits in a short time and offered APY rates approaching 40 percent. However, these rates were generally provided by local token incentives and could not be sustained. The total locked asset value in Ethena also decreased from $11 billion to $3.6 billion.
Technically, this decline in yield levels is due to reduced reward pools and weakening demand for borrowing. While platforms based on real-world assets, such as Sky, offer higher rates of 3.75 percent, the bulk of the revenue on these products comes from off-chain sources such as U.S. Treasury bills. This undermines the pure on-chain experience that some users expect from DeFi.
As risks increase, regulations are also on the table
In addition to the decline in returns, the sector also faces major vulnerabilities and cyber attacks. Recently, Balancer Labs ceased operations following a $110 million attack. There was a loss of 25 million dollars due to the abuse in the Resolv protocol; What attracted attention here was not a software error, but a lack of basic precautions. As a result of the growing imbalance between assets and liabilities held in the protocol, the USR token lost value from $ 1 to $ 0.13.
It is reported that crypto assets worth more than $2.47 billion from various protocols were seized by malicious actors in the first half of 2025. The main threat came from wallet vulnerabilities and social engineering attacks. It is claimed that organizations originating from North Korea are responsible for the recent $270 million abuse in the Drift protocol.
Paul Frambot, co-founder of Morpho, states that current returns are inevitable for the sector. Morpho aims to provide diversity in average return and risk-balance by offering customizable pools managed with different risk and collateral parameters. Some pools can offer a return of 3.64 percent, while the PYUSD pool can offer a return of 6.48 percent.
In the current situation, returns are approaching risk-free levels due to acting with the same parameters in all pools; It is stated that customizable, competitive pool models can provide higher rates.
Arguing that the low return in the industry is only a temporary situation, Aave representatives emphasize that the average stablecoin deposit return was above the rate offered by Interactive Brokers last year. In addition, borrowing rates on Aave can be lower than on traditional platforms, and user guarantees continue to yield returns.
On the other hand, legal regulations that closely concern the future of DeFi are also on the way. A pending bill in the US calls for a ban on passive stablecoin returns based solely on asset holding. If this regulation comes into force, there may be a possibility that DeFi returns will largely shift to traditional financial institutions.
