The Harsh Truth of DeFi: Stablecoin Yields Collapse, Welcome to the Era of Risk

The era of easy access to crypto earnings is officially over. The stablecoin yield opportunity has collapsed, falling from double-digit annualized yields to almost zero returns, DeFi borrowers and yield farmers are stuck in the wasteland, and the dream of “risk-free” returns is dead. This article originated from an article written by Justin Alick and was compiled, compiled and written by TechFlow. (Synopsis: Aave founder predicts relaunch of ETHLend next year, bringing “real BTC” back to DeFi lending? (Background added: What is 1inch new shared liquidity protocol Aqua to get dormant DeFi capital moving?) What's the use of a revolutionary financial movement if even your grandmother's bond portfolio can't win? Is the era of easy access to crypto earnings officially over? A year ago, depositing cash into stablecoins felt like finding a cheat code. Generous interest, ( said ) zero risk. Today, that dream has been reduced to ashes. The stablecoin yield opportunity across the cryptocurrency space has collapsed, leaving DeFi borrowers and yield farmers trapped in a wasteland of near-zero returns. What really happened to that “risk-free” golden goose (cash cow) with an annualized rate of return of (APY)? And who is responsible for the transformation of revenue mining into a ghost town? Let's dive into the “autopsy report” of stablecoin earnings, which is not a good sight. The dream of “risk-free” returns is dead Remember those good old days ( around ) 2021, when various protocols threw double-digit annualized yields on USDC and DAI like candy? The centralized platform has expanded its asset under management (AUM) to a huge level in less than a year by promising stablecoins a yield of 8-18%. Even supposedly “conservative” DeFi protocols offer more than 10% on stablecoin deposits. It's as if we hacked the financial system, free money! Retail investors flocked to the stablecoin, convinced that they had found the magical, risk-free 20% return of stablecoins. We all know how that ends. Fast forward to 2025: this dream is already moribund. Stablecoin yields have fallen to single-digit lows or zero, completely destroyed by a perfect storm. The promise of “risk-free return” is dead, and it wasn't real from the start. DeFi's golden goose (cash cow) turned out to be just a headless chicken. Tokens plummet, yields collapsed with them The first culprit is obvious: the cryptocurrency bear market. The fall in the price of the token destroyed the fuel source for many of the gains. DeFi's bull market is propped up by expensive tokens; You were able to earn 8% on stablecoins before because the protocol could mint and distribute governance tokens that soared in value. But when the price of these tokens plummeted by 80-90%, the party was over. Yield farming rewards dry up or become almost worthless. ( For example, Curve's CRV token, which used to be close to $6, is now hovering below $0.50 — a plan to subsidize liquidity providers' earnings. ) In short, there is no free lunch without a bull market. The fall in prices has been accompanied by a massive outflow of liquidity. The total lock-up value in DeFi (TVL) has evaporated from its highs. After peaking at the end of 2021, TVL entered a downward spiral, plummeting more than 70% during the 2022-2023 crash. Billions of dollars of capital escape agreements are either stop-loss exits for investors or a chain failure to force funds to withdraw. As half of the capital disappears, the gains naturally wither: fewer borrowers, fewer transaction fees, and significantly fewer token incentives that can be distributed. The result: DeFi's TVL ( more like a “total value drain”) has struggled to return to a fraction of its former glory, despite a modest rebound in 2024. When the fields have turned to dust, the yield farm harvests nothing. Risk appetite? Complete anorexia Perhaps the most important factor in killing gains is simple fear. The risk appetite of the cryptocurrency community has zeroed out. After the horror stories of centralized financial (CeFi) and DeFi's runaway scams, even the most radical speculators are saying “no thanks.” Both retail investors and whales have basically vowed to abandon the once-popular game of chasing earnings. Since the disaster of 2022, most institutional funds have suspended cryptocurrency investments, and those retail investors who have been burned are now much more cautious. This mindset shift is obvious: Why chase 7% gains when a dubious lending app might disappear overnight? The phrase “if it doesn't seem too good to be true, then it may not be true” has finally taken root. Even inside DeFi, users are shying away from everything except the most secure options. Leveraged yield mining, once a DeFi summer craze, is now a niche market. Yield aggregators and vaults are equally deserted; Yearn Finance isn't a hot topic on Twitter (CT) anymore. Simply put, no one has the appetite to try those fancy strategies right now. Collective risk aversion is killing the huge gains that once rewarded those risks. No risk appetite = no risk premium. All that remains is a meager base rate. Don't forget the protocol aspect: DeFi platforms themselves have also become more risk-averse. Many platforms have tightened collateral requirements, limited borrowing limits, or shut down unprofitable pools. After seeing competitors explode, the agreement no longer pursues growth at all costs. That means fewer aggressive incentives and a more conservative interest rate model, again pushing earnings lower. Ethereum of traditional finance: Why settle for 3% for DeFi when Treasury yields are 5%? Here's an ironic twist: the traditional financial world is starting to offer better returns than cryptocurrencies. The Fed's rate hike pushes the risk-free rate ( Treasury yield ) to levels close to 5% in 2023-2024. Suddenly, Grandma's boring Treasury yields outpaced many DeFi pools! This completely turns the script upside down. The whole appeal of stablecoin lending is that banks pay 0.1% and DeFi pays 8%. But when Treasuries pay 5% at zero risk, DeFi's single-digit returns look extremely unattractive on a risk-adjusted basis. Why would a sane investor deposit dollars into a dubious smart contract to earn 4% when Uncle Sam offers higher yields? In fact, this yield gap has sucked capital away from the cryptocurrency space. Big players are starting to put cash into safe bonds or money market funds instead of stablecoin farms. Even stablecoin issuers can't ignore this; They began to put reserves into treasury bonds in order to earn good income ( most of which was left ) by themselves. As a result, we see stablecoins sitting idle in wallets and not being deployed. The opportunity cost of holding a 0% yielding stablecoin becomes enormous, with tens of billions of dollars in interest losses. The dollar, parked in a “cash-only” stablecoin, does nothing, while real-world interest rates soar. In short, traditional finance has stolen DeFi's job. DeFi yields have to go up to compete, but they can't go up without new demand. So the money just left. Nowadays, Aave or Compound may provide about 4% annualized return on your USDC ( comes with various risk ), but…