Coin Metrics said in a research report that the stablecoin market has grown beyond $290 billion, and that investors are increasingly using lending venues such as Aave and Morpho in a way that resembles parking cash in short-duration fixed-income products. The report’s conclusion is less flattering for on-chain yields: stablecoin lending has not consistently outperformed 1-year U.S. Treasuries.
The report, written by Cooper Duschang and Tanay Ved and translated by TechFlow, places on-chain fixed income, Treasuries and volatile crypto assets in one comparative framework to measure the actual risk compensation available in stablecoin lending.
On-chain yield has expanded, but not always beyond Treasury returns
According to the report, more than $8.6 billion in stablecoins has been deposited into lending protocols across Aave v3 and Morpho, where suppliers earn interest paid by borrowers. At the same time, tokenized Treasuries, corporate bonds and money market funds have broadened the menu of yield-bearing assets available on-chain.
The authors said investors have long used short-dated Treasuries and money market funds to earn income while keeping risk exposure relatively low. Those instruments tend to be treated as safer because of short duration and deep liquidity. On-chain yield products now include yield-bearing stablecoins, stablecoin deposit income in DeFi protocols, and tokenized Treasuries that share features with traditional fixed-income instruments.
On-chain investing can offer instant settlement, programmability and composability, the report said, but those features come with added risks. The examples cited for tokenized Treasuries include Franklin Templeton’s money market fund BENJI and BlackRock USD Institutional Digital Liquidity Fund, or BUIDL. In the report’s view, those assets must also manage smart contract risk and redemption or liquidity risk.
The report argues that the extra complexity and risk in DeFi should, in theory, lead stablecoins to offer higher returns. In practice, that premium does not reliably appear.
The same USDC can produce very different returns on Aave and Morpho
Returns for the same stablecoin differ across lending protocols. Coin Metrics said that since January 2026, average USDC deposit yields on Aave and Morpho have been 1.59% apart.
The report notes that after the KelpDAO exploit in April 2026, some analysts argued that investors in lending pools were not being paid enough for the risks they were taking. Stablecoin lenders still face depegging risk against fiat, oracle manipulation and smart contract vulnerabilities. As in traditional fixed income, the report says, higher risk should come with higher compensation.
Aave and Morpho produce different risk-adjusted returns because their protocol designs are different. Morpho uses isolated lending markets for each collateral-borrow pair, which leads to distinct borrow and supply rates across markets. Aave, by contrast, uses shared pools that generate the same borrow and supply rates for assets within each market.
In Aave Core’s USDC lending market, the changing yield highlights how variable on-chain returns are relative to traditional fixed-rate products. Coin Metrics said USDC yields on Aave averaged 31 basis points below the 1-year Treasury yield. For 78% of the time in 2026, Aave’s annualized USDC yield stayed under that Treasury benchmark.
In Morpho v2 vaults, median USDC returns averaged 65 basis points above the 1-year Treasury yield, though annual volatility was about 3.3 times higher. Lending rates are driven by supply and demand and can change at any time, while Treasury yields are shaped by Federal Reserve policy and tend to move more gradually.
Yield gaps also show up between stablecoins inside the same protocol
The report says lending rates are set by the balance between supply and borrowing in each pool, so different stablecoins can post different returns even when reserves are similar.
On Aave, USDC and USDT are the two largest stablecoins by deposits, and the average spread between them is 90 basis points. The report attributes that difference to utilization. Over the past 90 days, USDC’s average utilization rate was 10% higher.
PYUSD supply rates also briefly moved higher after lenders withdrew available liquidity, pushing utilization up and lifting rates for both borrowers and lenders.
Morpho showed similar dispersion. Coin Metrics said rates in Morpho v1 vaults may be more volatile as capital rotates into v2 vaults and remaining liquidity changes deposit conditions across markets. In Morpho v2 vaults, the average yield gap between USDC and USDT was 126 basis points.
The report adds that the four stablecoins discussed all provide attestation, invest in cash and short-dated Treasuries, and support distribution across multiple networks. Even so, differences in DeFi integrations, regulation, demand and protocol design lead to different yield expectations.
Governance, vault curators and yield-bearing stablecoins add another layer
Coin Metrics said on-chain yields are not determined only by protocol architecture or the underlying asset. Governance and vault curators also influence returns. Aave governance can adjust lending curves based on the community’s assessment of asset risk. Morpho’s yields depend in part on decisions made by vault curators.
The report compares curators to investment managers. They allocate deposits across different lending markets based on risk preferences and target higher returns through portfolio construction. Over the past 90 days, the median yield for depositing USDC into USDC vaults was 4.79%. A handful of high-yield outliers lifted the average vault yield to about 5.31%. That result, the report says, shows curators can raise returns even without intervention from the lending protocol itself.
Stablecoin issuers can also bypass intermediary lending markets and distribute rewards directly to holders to encourage adoption. The report cites Sky’s USDS and Aave’s GHO as examples of assets that can be natively staked for governance-managed rewards.
More than 66% of circulating USDS has been staked into sUSDS, with a current floating rate of about 3.52%. Users who stake GHO receive sGHO and a fixed 4.25% yield.
Stablecoins have offered steadier lending returns than volatile crypto assets
The report says that even if stablecoins carry more risk than traditional peers at the same yield level, and even if they do not always compete well against conventional fixed-income products, they have historically provided a steadier source of returns than lending more volatile crypto assets.
If an investor had deposited assets on Aave in 2024, USDC would have produced a higher return than lending ETH, according to the report. Even though ETH delivered an 8.9% price return, the income earned through Aave was about $940 lower than what USDC generated.
For WBTC, only 0.1% of total return came from yield, while the remaining 86.9% came from price appreciation, because the asset is primarily used as collateral.
On Morpho, starting from 2025, the Steakhouse USDT vault posted a 4.5% return, while the Steakhouse ETH vault lost 1.9%. Excluding price return, Steakhouse USDT still outperformed Steakhouse ETH by 2%.
Coin Metrics concludes that stablecoins offer a relatively stable source of yield. They do not always produce competitive results against traditional fixed-income alternatives, but compared with other crypto assets, their return profile helps explain why more than $8.6 billion in stablecoins remains parked in on-chain lending protocols.
