Are shrinking DeFi yields driving users away from on-chain markets?

DeFi yield has fallen to a much lower range in 2026, and was considered a sign of a maturing industry. However, the recent Drift Protocol hack raised the issue of technical risk and whether current yields offset the value of putting assets on-chain. 

DeFi yield has been sliding on most protocols, and the early days of high-return yield farming seem to be over. DeFi has become a more mature sector, where protocols rely on stablecoins and the predictable yield of tokenized bonds or money funds. 

Peak farming days often relied on new token issuance to offset risk, and traders would recoup their initial deposit within a short period. 

Santiago R., founder of Inversion, considers that on-chain yield should be much higher to offset the current technical risks. 

“I get asked constantly what is enough yield to come onchain. I think it’s at least 18% today. Anything below that is not worth the hassle or the risk,” explained Santiago R. in an X post. 

He does not give details on generating that yield, but points to smart contract risk, general exposure of holdings, and overall protocol risk. 

DeFi yield should be higher to offset technical risk

DeFi is still not anonymous and has often exposed whale wallets. Confidential usage is not as widespread yet. 

Overall, DeFi calculates risk and yield in financial terms, mostly linked to the volatile nature of crypto assets. Protocols do not account for general vulnerabilities, which have often led to dramatic losses. 

On-chain rates are also low due to the limited demand for assets. Low yield on deposited tokens does not mean the investment is low-risk, but that risk may not be priced correctly, noted Santiago R. He proposes higher yields, alongside selling insurance products against losses. 

DeFi yield slides in the past months

DeFi yields have fallen even below the levels of US T-bills, at 3.8% annualized. For some lending protocols, annualized yields start at virtually zero.

There are still high individual liquidity pair yields on DEX, which offset the risk of impermanent loss or a token rug pull. However, most of the Aave V3 and other lending vaults have much lower yields.

While individual vaults can still offer high hypothetical returns, overall yields have fallen to the lowest level since 2022.

Median DeFi yields have been sliding in the past year, and in some cases may be too low to offset locking assets on-chain. | Source: DeFiLlama.

There are also no more general periods of outsized yields, partially due to the more bearish outlook for the crypto market. High yields happen only during periods of hype, but the general enthusiasm ended with the first DeFi summer.

Especially for stablecoin liquidity pairs, yields are often under 0.5%. For Morpho, vault yield ranges from virtually zero to as much as 352% for the riskiest vaults. 

The recently exploited Drift Protocol offered relatively high yields of up to 16%, reflecting crypto risk partially. The protocol’s vaults were considered low-risk and mature, at least up to the $280M hack on April 1. 

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