Author: CoinW Research Institute
Key Takeaways
On-chain lending functionality is gradually transforming, evolving from an early tool primarily for leverage into a fundamental infrastructure for capital allocation. On-chain lending has become a crucial component of the DeFi ecosystem. Currently, the TVL of on-chain lending protocols is approximately $64.3 billion, accounting for about 53.54% of the total DeFi TVL.
Aave has become the leading protocol in the on-chain lending sector, with a TVL of about $32.9 billion, representing roughly 50% of the total lending sector TVL. Meanwhile, protocols like Morpho continue to consolidate their market share, resulting in a competitive landscape characterized by one dominant player and several strong contenders.
Credit-based assets have become a significant part of on-chain Real World Assets (RWA). As more types of debt instruments are introduced on-chain and institutional demand for compliant, traceable collateral increases, RWA lending is poised to become another major growth engine. Simultaneously, improvements in both the macroeconomic monetary environment and regulatory frameworks are collectively reducing the costs associated with capital flow and compliance, creating smoother external conditions for market development.
On-chain lending protocols also face multiple risks. Firstly, they are highly dependent on collateral value and market liquidity, making them susceptible to liquidations during market volatility. Secondly, the introduction of unsecured lending and RWA increases credit default and counterparty risks. Additionally, over-reliance on token incentives can artificially inflate scale, and cross-chain expansion exposes vulnerabilities in bridge security. Therefore, on-chain lending protocols must balance security, liquidity, and compliance while pursuing growth.
With the gradual tokenization of securities and the entry of compliant assets like U.S. Treasuries onto the chain, on-chain lending is evolving from a crypto-native financing tool into mainstream financial infrastructure, with a more robust collateral foundation. In this process, inter-institutional on-chain lending is expected to be a significant source of growth. At the same time, the coexistence of fixed and floating interest rates will drive the maturation of the on-chain interest rate system. Regulatory and capital logic may also lead to a market structure divided into a compliant, stable layer and a high-risk, innovative layer. On-chain lending will accelerate its integration into the global capital market through asset compliance and institutional alignment.
Table of Contents
I. Overview of the On-Chain Lending Market
- 1.1. Market Size and Capital Flow
- 1.2. Macro and Industry Drivers
- 1.3. Regulatory Dynamics and Compliance
II. Classification of On-Chain Lending Markets
- 2.1. Collateralized Lending Protocols
- 2.2. Uncollateralized Lending Protocols
- 2.3. Modular Lending Protocols
- 2.4. Integration of RWA and Lending
III. Competitive Landscape
- 3.1. Leading Protocol Landscape and TVL Changes
- 3.2. Revenue Structure and Profit Model Comparison
- 3.3. User Profile and Asset Structure
- 3.4. Multi-Chain Deployment and Ecosystem Integration
IV. Risks, Dilemmas, and Challenges
- 4.1. Liquidity Risk
- 4.2. Credit Default Risk
- 4.3. Incentives and Growth Illusion
- 4.4. Cross-Chain Risk
V. Potential Development Trends
- 5.1. On-Chain Transformation of Inter-Institutional Lending
- 5.2. On-Chain Tokenization of Securities and Collateral Potential
- 5.3. U.S. Treasuries as Core Lending Assets
- 5.4. Coexistence of Fixed and Floating Interest Rates
- 5.5. Two-Tier Structural Differentiation in the Lending Market
VI. Conclusion
References
On-chain lending protocols have become a vital part of the DeFi ecosystem. Evolving from initial tools for leverage expansion, they now encompass diverse capital markets including stablecoins and RWA. These protocols not only steadily carry liquidity but are increasingly becoming centers for capital pricing and crucial hubs for capital allocation. Currently, the TVL of on-chain lending protocols is approximately $64.3 billion, accounting for about 53.54% of the total DeFi TVL (nearly $120.2 billion). Specifically, Aave alone holds about 50% of the lending TVL, approximately $32.9 billion; protocols like Morpho hold respective market shares.
Furthermore, the diversity of funding sources and asset classes in on-chain lending is increasing, with RWA becoming a new engine for protocol growth. The structure of the on-chain lending market faces a situation of coexisting growth and challenges. On one hand, protocol TVL has gradually recovered, showing a overall market recovery trend. On the other hand, the market still faces structural challenges: severe liquidity fragmentation, dispersed funds across protocols and chains, and a lack of efficient liquidity integration mechanisms; traditional stablecoin lending is nearing saturation, while RWA and institutional credit supply remains insufficient, leading to interest rate differentiation and differences in risk appetite. Below, this report will provide a systematic analysis of the operational logic, current development status, and trends of the on-chain lending sector from the perspectives of market overview, market classification, and competitor landscape.
Full report available at: https://www.coinw.com/zh_CN/research/on-chain-lending-market-structure-risks-and-the-new-cycle/106
