DeFi Lending Assets Surge 60% to $60 Billion Driven by Institutionalization

Crypto lenders are currently holding nearly $60 billion in assets, marking a significant surge in the decentralized finance (DeFi) sector. This growth is driven by the sector's evolution into a backend financial layer for user-facing applications, according to a recent report. The total value locked (TVL) in top DeFi lending protocols, including Aave, Euler, Spark, and Morpho, has increased by 60% over the past year, approaching the $60 billion mark. This rapid institutionalization is supported by increasingly sophisticated risk management tools, transforming these platforms into modular financial networks.

One notable trend highlighted in the report is the "DeFi mullet" phenomenon, where user-facing applications embed DeFi infrastructure in the backend to offer yield or loans. This trend creates a seamless experience for users by abstracting away the complexities of DeFi. For instance, Coinbase users can borrow against their bitcoin holdings through Morpho’s backend infrastructure, with over $300 million in loans already originated via this integration. Similarly, Bitget Wallet’s integration with Aave offers a 5% yield on USDC and USDT holdings, while PayPal provides yields near 3.7% to its wallet users through its PYUSD stablecoin.

DeFi protocols are also expanding into tokenized real-world assets (RWAs), such as U.S. Treasuries and credit funds. These tokenized assets can serve as collateral, earn yield directly, or be bundled into more complex strategies. Tokenization of investment strategies is also gaining popularity, with protocols like Pendle managing over $4 billion in total value locked, much of it in tokenized stablecoin yield products. Ethena’s sUSDe and similar yield-bearing tokens offer returns above 8% through strategies like cash-and-carry trades, abstracting away the operational burden for the end user.

A critical trend in the DeFi sector is the rise of crypto-native asset managers. Firms like Gauntlet, Re7, and Steakhouse Financial allocate capital across DeFi ecosystems using professionally managed strategies. These asset managers play a key role in capital allocation and governance, fine-tuning risk parameters and deploying capital across a range of structured yield products, tokenized RWAs, and modular lending markets. The sector’s capital under management has grown fourfold since January, from $1 billion to over $4 billion, indicating a significant increase in institutional participation and sophistication in the DeFi space.