In recent years, decentralized finance (DeFi) platforms drew attention by promising returns well beyond those seen in conventional finance. Yet, yields on major DeFi protocols have dropped sharply in recent months, with rates from leading platforms such as Aave now trailing the returns of mainstream passive income products. This turnaround is prompting investors to question the defining promise of DeFi: the balance between high risk and high reward.
Why DeFi yields are declining
Back in 2021 and 2022, lenders on Aave and similar platforms could earn more than 20% per year by depositing U.S. dollar stablecoins. As of 2026, however, the annual yield for USDC savings on Aave has plummeted to around 2.61%, falling below the 3.14% offered by the popular broker Interactive Brokers. Returns in Aave’s largest USDT pool have slipped to just 1.84%. Elsewhere, Lido’s stETH pool posts a 2.53% return, while yields for Ethena’s USDe now stand as low as 3.47%.
At its peak, Ethena attracted billions of dollars in deposits by offering nearly 40% annual yields. Most of these high rates were powered by local token incentives, making them unsustainable over time. Accordingly, the total value locked in Ethena has dropped from $11 billion to $3.6 billion.
The primary drivers behind these falling yields are diminished reward pools and weaker borrowing demand. While platforms like Sky, which leverage real-world assets, can provide yields as high as 3.75%, much of this income is sourced from traditional financial instruments like U.S. Treasury bonds. This dynamic has led some users to question whether DeFi is still delivering the fully on-chain experience they seek.
Rising risks and the prospect of new regulations
In addition to declining returns, the DeFi sector continues to grapple with high-profile hacks and security breaches. Recently, Balancer Labs ceased operations following a $110 million exploit. In another case, the Resolv protocol lost $25 million, a consequence not of software bugs, but of inadequate precautionary measures. The widening gap between assets held in the protocol and its liabilities sent the value of the USR token tumbling from $1 to just $0.13.
Reports indicate that, in the first half of 2025 alone, over $2.47 billion worth of crypto assets were stolen from various protocols. The main vulnerabilities involved wallet security lapses and sophisticated social engineering attacks. Some investigations into a recent $270 million Drift protocol exploit suggest ties to North Korean-backed groups.
Paul Frambot, co-founder of Morpho, describes today’s muted yields as a natural outcome for the industry. Morpho aims to balance average returns against varying risk profiles by offering customizable pools governed by distinct risk and collateral settings. Some of these pools manage to reach yields of 3.64%, while the PYUSD pool offers up to 6.48%.
At present, yields are converging toward risk-free levels because most pools operate under similar parameters; however, customizable and competitive pool models are proving capable of supporting higher returns.
Representatives from Aave, for their part, argue that depressed yields are only temporary. They point out that, on average, last year’s stablecoin yields on Aave were actually higher than those at Interactive Brokers. Additionally, borrowing costs on Aave can occasionally undercut traditional alternatives, and collateral assets continue to generate returns for their owners.
At the same time, DeFi’s future could be shaped by incoming regulatory changes. A pending bill in the United States proposes to ban passive stablecoin yields that rely solely on asset custody. Should this legislation pass, DeFi yields could shift significantly toward conventional financial institutions, further narrowing the distinctive edge DeFi once held.
