DeFi Loan Demand Slows as Crypto Traders Reduce Debt Amid Market Fluctuations

The total value of loans on leading DeFi platforms such as Aave and Morpho has fallen significantly from their mid-December peaks as investors seek to reduce outstanding debt or face liquidation.

Christian Sandor | Edited by Nikhilesh De Updated April 8, 2025, 8:04 PM Published April 8, 2025, 6:53 PM

Key points:

• Demand for decentralized finance (DeFi) loans has fallen significantly as a result of recent market shocks, indicating a general deleveraging.
• The yield on stablecoins in US dollars, according to vaults.fyi, which tracks the average yield paid to DeFi lenders, has fallen to 2.8%, the lowest in a year.
• Wallfacer Labs' Ryan Rodenbaugh argues that leading DeFi lending protocols like Aave and Morpho have seen sharp declines in the value of their borrowed assets in recent months, indicating a decline in risk appetite among investors.

Demand for loans in decentralized finance (DeFi) protocols has fallen sharply following recent market volatility, indicating a general deleveraging as crypto investors close risky positions.

The average yield on stablecoins in U.S. dollars — the amount protocols pay lenders to borrow their assets — fell to 2.8% on Tuesday, the lowest in a year, according to DeFi yield-earning application benchmark vaults.fyi. That level is well below the average U.S. dollar money market rates in traditional markets (4.3%) and represents a significant decline from the crypto market’s mid-December peak, when DeFi rates topped 18%.

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“This is largely due to the market moving towards a low-risk environment where protocol borrowing has been significantly reduced,” said Ryan Rodenbaugh, CEO of Wallfacer Labs, the team behind vaults.fyi.

The trend reflects the risk-off sentiment sweeping crypto markets, with investors reducing leverage amid high price swings. As users repay loans and liquidations eliminate under-collateralized positions, demand for loans is declining. At the same time, deposits available for lending across protocols remain stable, according to vaults.fyi data, meaning the decline in borrower revenues is being spread across the same number of lenders, putting downward pressure on yields.

This creates a “negative double whammy” for the rates that the remaining creditors receive, Rodenbaugh said.