For a one-dollar deposit, a bank can earn ten times the profit of DeFi lending protocols like Aave. This is because the lending demand in the crypto market still revolves around native operations such as revolving loans, leverage, and arbitrage, and its scale cannot be compared with the high-premium credit business of banks. However, with RWA and the approaching future of tokenization, the DeFi market will eventually flourish.
Blockworks consultant Silvio Busonero published an article analyzing the practical uses of Aave lending, the structural reasons for the high profitability of traditional banks, and how the future of the on-chain lending market can be redefined through tokenized assets.
Why are banks making more money than DeFi lending? The real source of the "10x profit gap".
Silvio points out that traditional banks can attract deposits at extremely low costs, with funding costs even lower than the yield on U.S. Treasury bonds.
Furthermore, banks can engage in substantial unsecured lending, providing high-risk, high-return lines of credit to businesses, such as for building large data centers or corporate financing. These high-premium credit transactions are a key source of bank profits that far exceed those of DeFi.
At the same time, banking services have extremely high customer stickiness, and together with regulation, they form a moat, ensuring stable high profits through this monopolistic position.
In contrast, Aave's deposit rates are often higher than those of government bonds, and its loans are mostly "over-collateralized" loans with poor capital utilization capabilities. It lacks truly high-value credit risk mechanisms, which inherently limits its interest rate spread.
Some people will see this as a bearish signal, but I would say it's part of the market structure and is changing.
Analyzing Aave's Lending Purposes: Leverage and Arbitrage Dominate Flow
Currently, Aave's outstanding loans have exceeded $20 billion, but their uses differ significantly from traditional lending needs. Market data shows that approximately 45% of the lending volume comes from stETH/ETH basis trades, which involves staking ETH to earn yield while simultaneously borrowing WETH to profit from the interest rate spread. This is primarily driven by whale.
Other major uses include stablecoin or Pendle PT revolving loan arbitrage, leveraged borrowing of volatile assets by retail investors, and other minor short hedging strategies.
Overall, Aave's lending demand is highly dependent on the leverage cycle of the crypto market itself, rather than real economic activity.
The demand for crypto leverage makes DeFi lending "not quite" a bank: market conditions directly affect returns.
Therefore, the revenue streams of DeFi lending protocols primarily depend on three factors:
Where are there high APY opportunities: such as newly emerging markets or agreements
Are there deep, long-term viable arbitrage opportunities, such as ETH/wstETH or stablecoins?
Can partnerships with external companies open up new markets, such as PYUSD or RWA assets?
In other words, Aave's revenue structure and valuation are highly correlated with the crypto market, and fluctuations in the market cycle will drive the growth of lending volume and leverage. This makes Aave more like a proxy indicator of the crypto market's GDP than a true credit market.
How can DeFi lending rival traditional finance? It must first break free from the constraints of cryptocurrency prices.
Silvio points out that the truly promising direction for DeFi is not increasing leverage, but rather gradually decoupling on-chain lending from the volatility of the crypto market. Only when lending is no longer entirely dependent on ETH prices, APY, or arbitrage opportunities, but can support diverse credit needs, can the market size of DeFi rival that of traditional finance.
He identified several key areas that could drive this shift in the future:
RWA tokenized funding markets, such as bonds or corporate notes.
On-chain lending services initiated by off-chain participants
Stocks and RWA as collateral
Structured underwriting through crypto-native credit scoring
These potential changes will make DeFi lending the infrastructure of the on-chain credit market, but first it must break away from the market structure dominated by arbitrage.
2026 will be a pivotal year for DeFi: DeFi lending will move towards a profit model closer to that of banks.
At the end of the article, the author anticipates that with RWA's imminent on-chain implementation and the anticipated rollout of on-chain credit scoring, the revenue structure of crypto lending protocols will shift from "leverage-driven" to "real credit demand":
Tokenization makes lending one of the most natural endpoints for cryptocurrencies. Once DeFi lending revenue can decouple from market volatility, its valuation and profit model will be repriced by the market. I expect this to begin in 2026.
This article, "How Tokenization Will Empower On-Chain Lending in the Future: Why Researchers Name 2026 as a Turning Point for DeFi?", first appeared on ABMedia, a ABMedia .
