DeFi has transcended its incentive-driven origins, evolving into an ecosystem where real utility and sustainable fee models are taking center stage. While critics like Vitalik Buterin have labeled DeFi an ouroboros — dependent on the perpetual motion of crypto trading — this view overlooks the sector’s steady progression toward sustainability.
Five key takeaways
- DeFi yields are transitioning from token rewards to sustainable, fee-driven revenue models, surpassing $6B in fees earned in 2024.
In the early days of DeFi, protocols relied heavily on token rewards to bootstrap liquidity and attract users. While effective initially, this approach often resulted in unsustainable emissions, diluting token
value and creating fleeting incentives. Over the past year, however, DeFi has seen a meaningful shift toward more sustainable, fee-driven yield models, reflecting the ecosystem’s growing maturity.
This transition aligns with broader market trends as users prioritize yield sustainability and protocols compete on efficiency rather than emissions. Protocols like Lido, Uniswap, and Aave have
demonstrated that real, fee-based revenues are not only chievable but are becoming the foundation of DeFi’s yield generation. Across all DeFi protocols, total fees earned by liquidity providers in 2024
surpassed $6B. DeFi’s total market cap reached $130B in 2024, which positions the sector at an approximate 20x P/E multiple — a compelling valuation for a rapidly growing industry that continues
to outpace traditional finance in innovation and adoption.
- Onchain lending is flourishing from higher borrowing demand, with USD yields averaging ~10%, far outpacing TradFi returns.
The onchain lending market reached new milestones in 2024, with total value locked (TVL) in lending protocols surpassing $54.1B — an all-time high and a 139% increase from 2023. This growth has
been fueled by a combination of rising yields, increasing demand for leverage in crypto markets, and improvements in risk management that have made DeFi lending more secure and accessible.
Borrowing activity surged during the year, particularly in Q4, driving significant earnings for lenders. Aave, the dominant lending protocol, led this expansion, with outstanding borrows increasing over 4x, from $3.4B to $14.5B by year-end. Over the same period, Aave more than doubled its user base to around 60,000 unique borrowers. Borrow rates in Aave’s USDC market climbed from 6% APY at the start of the year to a peak of 17% during the Q4 rally, before stabilizing around 10%.
- Bridging and staking are safer than ever, with stronger risk management making them foundational elements of DeFi.
The bridging sector, once notorious for high-profile exploits, experienced a dramatic decline in security incidents. Losses from bridge hacks dropped by over 95% year-over-year, with only $19M in funds compromised. This dramatic reduction reflects the sector’s growing maturity and its ability to address long-standing vulnerabilities, restoring confidence in cross-chain infrastructure.
Similarly, staking has solidified its position as the backbone of blockchain network security, with Ethereum leading the way after its successful transition to Proof-of-Stake (PoS). Staking TVL reached new heights in 2024, driven by Ethereum’s growing participation rate, which doubled to 28% following the Shapella upgrade. Liquid Staking Tokens (LSTs) played a crucial role in this growth, offering users the ability to stake assets while maintaining liquidity.
- Bitcoin staking could unlock $100B in idle capital, potentially increasing DeFi TVL by over 50%.
Bitcoin’s role as the world’s most established crypto asset has historically been defined by passive HODLing, with over $2 trillion in BTC largely sitting idle. However, new primitives like Bitcoin staking are changing this narrative, offering HODLers and institutions the opportunity to generate yield while securing Proof-of-Stake (PoS) networks. Even a modest shift of just 5% of idle BTC into staking could inject $100B into DeFi, driving TVL growth by over 50%.
This estimate is conservative when compared to other major assets. Ethereum’s DeFi TVL is equivalent to 30% of its market cap, while Solana and Tron boast TVL ratios of 19% and 35%,
respectively. Even Binance Chain, which has a lot of its value associated with its centralized exchange, has a TVL ratio of ~7%. In contrast, Bitcoin’s TVL sits at less than 0.5% of its market cap
today, leaving significant room for growth.
- Innovations like restaking, perpetual DEXs, and real-world assets are rebalancing DeFi’s tradeoffs, unlocking more efficient ways to generate yield and scale the ecosystem.
DeFi has long been defined by its tradeoffs between decentralisation and efficiency. However, new innovations like restaking, perpetual decentralised exchanges (perp DEXs), and real-world assets (RWAs) address these challenges, creating more scalable and capital-efficient ways to generate yield.
By rebalancing the tradeoffs between efficiency and trustlessness, these innovations not only expand DeFi’s yield potential but also enhance its ability to compete with traditional finance. As adoption grows, they are set to play pivotal roles in shaping the next phase of DeFi’s evolution.
You can read and download the full report here.