At a Glance
- The cryptocurrency yield product market is significantly smaller than traditional finance (TradFi), with only 8-11% of crypto assets offering passive yield compared to 55-65% of TradFi assets.
- New blockchain sectors like Liquid Staking Tokens (LSTs) and Real-World Assets (RWAs) are actively closing this gap.
- Regulatory advancements, such as the GENIUS Act, are fostering demand for yield-bearing stablecoins and RWAs.
- Major cryptocurrencies like Ether (ETH) and Solana (SOL) are seeing increased traction in their LST offerings, boosting capital efficiency for stakers.
- The report predicts exponential growth for crypto yield-bearing assets due to increasing institutional interest in on-chain efficiency.
DeFi Yield Products Lagging TradFi, But Closing the Gap
While cryptocurrency-based yield products continue to trail their traditional finance (TradFi) counterparts, emerging blockchain sectors like liquid staking tokens (LSTs) and tokenized real-world assets (RWAs) are making significant strides in narrowing this disparity. This observation comes from a recent report co-authored by RedStone Oracles, Gauntlet, Stablewatch, and the Tokenized Asset Coalition.
The report highlights a substantial gap: only 8% to 11% of cryptocurrencies currently offer passive yield-generating models. In contrast, a much larger segment of TradFi assets, ranging from 55% to 65%, provide such opportunities, indicating a notable fivefold difference.
💡 However, the landscape is evolving rapidly. Stablecoins, RWAs, and prominent blue-chip yield tokens are actively reducing decentralized finance’s (DeFi) passive income deficit.
Regulatory Clarity Driving Demand for Yield Assets
Advancements in regulatory frameworks are playing a crucial role in the crypto space’s maturation. Legislation like the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, passed in July, is helping to legitimize and standardize the industry. This increasing clarity is fueling a surge in demand for both yield-bearing stablecoins and RWAs, according to the report.
The GENIUS Act specifically provides clear guidelines for stablecoin collateralization and enforces compliance with Anti-Money Laundering (AML) laws, thereby enhancing trust and security in the stablecoin market.
“As clarity emerges, yield-bearing stablecoins are exploding: market capitalization is up 300% YoY, with new protocols launching monthly to capture the opportunity.”
Tokenized Real-World Assets and LSTs Gaining Momentum
Real-World Assets (RWAs), which involve tokenizing traditional assets like bonds or investment funds, are introducing novel avenues for passive income. Major financial institutions are increasingly recognizing the efficiency benefits of conducting settlements on-chain, further driving the adoption of RWAs.
Similarly, blue-chip yield tokens, particularly Liquid Staking Tokens (LSTs) for Ether (ETH) and Solana (SOL), are gaining significant traction. These LSTs are enhancing capital efficiency for cryptocurrency stakers by allowing them to utilize their staked assets in other DeFi protocols.
The adoption of ETH LSTs has seen a notable increase, rising from six million to 16 million tokens in the two years leading up to November. Based on current prices, this growth represents an increase of $34 billion in notional value.
LSTs, exemplified by Lido’s stETH (STETH), provide crypto stakers with an equivalent token that represents their staked assets. This tokenized representation can then be traded or used across various DeFi protocols, unlocking greater capital efficiency.
Crypto Yield Assets Poised for Exponential Growth
The report suggests that crypto yield-bearing assets are on the cusp of exponential growth in the upcoming months. This anticipated expansion is largely attributed to the ongoing efforts to bridge the gap between DeFi and TradFi, which the report identifies as crypto’s greatest opportunity.
⚡ As the Crypto-as-infrastructure narrative gains momentum and on-chain finance demonstrates superior capital efficiency, yield-generating crypto assets are strategically positioned for substantial expansion. Institutional capital is increasingly seeking out these more efficient financial solutions.
Yield-generating tokens, such as Solana LSTs, are also attracting institutional interest due to their ability to offer passive yields of approximately 4% on staked holdings, in addition to potential price appreciation.
Similar to ETH LSTs, Solana LSTs have experienced a doubling in supply, increasing from 20 million in January 2024 to approximately 40 million at the time of writing. Currently, a significant 67% of the total Solana token supply is locked within staking smart contracts.
Expert Summary
A recent report indicates that while crypto yield products lag behind traditional finance, sectors like LSTs and RWAs are rapidly closing this gap. Regulatory clarity and institutional demand for efficiency are driving this growth, with ETH and SOL LSTs showing particularly strong adoption. The outlook for crypto yield-bearing assets is positive, with predictions of exponential growth in the near future.
