Aave founder Stani says the real shift in on-chain lending is not the asset class itself but the cost structure behind lending. In his view, borrowers can currently access stablecoin loans on-chain at roughly 5%, while centralized crypto lenders often charge 7% to 12% before adding service fees and other charges.
That argument comes as on-chain lending has expanded from a niche crypto experiment in 2017 into a market worth more than $100 billion. Stablecoin borrowing is the main driver, backed largely by crypto-native collateral such as Ether, Bitcoin, and related assets. Borrowers use these markets to unlock liquidity from long positions, run leverage loops, and pursue yield arbitrage.
Lower rates come from removing layers of overhead
Stani argues that on-chain lending is cheaper because it strips out redundant steps embedded in traditional finance. Customer acquisition, underwriting, servicing, reconciliation, and risk transfer all add cost in legacy systems. On-chain markets handle capital aggregation and risk pricing through transparency, composability, and automation. Put simply, the expensive part is not capital alone. It is the machinery around it.
He points to newer financial primitives such as USDe and Pendle as examples of how open systems can absorb liquidity across the ecosystem and extend the reach of existing protocols like Aave without relying on sales teams, back-office reconciliation, or operational overhead. In that setting, idle liquidity and weak efficiency are exposed quickly, and capital is repriced continuously.
Collateral, not capital, is the current constraint
Stani also says on-chain lending does not suffer from a shortage of capital. The constraint is the supply of collateral that can be borrowed against. Much of today’s activity still recycles similar collateral into similar strategies. He describes that as a temporary limitation rather than a structural ceiling. Bear markets, with softer demand and lower yields, make one thing clearer: capital in on-chain lending remains in constant competition instead of sitting still behind committees or balance-sheet assumptions.
He expects crypto to keep producing native assets, productive primitives, and on-chain economic activity that can broaden what lending markets finance. In the article, Ethereum is framed as a maturing programmable economic resource, while Bitcoin is described as strengthening its role as a reserve of economic energy. Neither, he argues, has reached its final form.
Why traditional lending still charges more
Stani’s explanation for high borrowing costs in traditional finance is blunt. Capital is not scarce. He puts clearing rates for high-quality capital at about 5% to 7%, and for risk capital at roughly 8% to 12%. Borrowers still pay more because the systems built around capital are loaded with inefficiencies: high customer acquisition costs, outdated credit models, rigid approval processes, labor-heavy servicing, and a disconnect between who prices risk and who ultimately bears it.
Under that structure, brokers do not absorb default risk, originators can sell exposure quickly, and compensation continues even when outcomes deteriorate. He presents broken feedback loops as a hidden cost inside lending. If origination, risk assessment, servicing, and capital allocation do not become software-native and move on-chain, he argues, borrowers will keep paying too much.
What broader adoption would require
For on-chain lending to reach billions of users, Stani says it must handle real economic value instead of staying confined to abstract crypto finance. The next step, as he sees it, is linking crypto-native assets with tokenized real-world rights and obligations. The goal is not to recreate the old financial stack. It is to run it at much lower cost.
He frames DeFi as a candidate to replace legacy financial back ends and places Aave inside that transition. Once end-to-end operating costs for on-chain lending fall well below those of traditional lending, the question shifts from feasibility to cost competition. In that model, Aave is presented as a possible capital layer for a new financial back end serving fintech firms, institutional lenders, and retail users.