From Aave to Ether.fi: Who Captured the Most Value in the On-Chain Credit System?

By: blockbeats|2025/12/24 10:00:04

Original Title: Why the DeFi Lending Moat is Bigger Than You Think

Original Author: Silvio, Crypto Researcher

Original Translation: Dangdang, Odaily Planet Daily

As the market share of Vaults and Curators in the DeFi world continues to rise, the market is starting to question: Is the lending protocol's profit space being continuously squeezed? Is lending no longer a good business?

However, if we shift our focus back to the entire on-chain credit value chain, the conclusion is quite the opposite. Lending protocols still occupy the strongest moat in this value chain. We can quantify this with data.

On Aave and SparkLend, the interest fees paid by Vaults to the lending protocol actually exceed the income generated by the Vaults themselves. This fact directly challenges the mainstream narrative of "distribution is paramount".

From Aave to Ether.fi: Who Captured the Most Value in the On-Chain Credit System?

At least in the lending sector, distribution is not king.

In simple terms: Aave not only earns more than various Vaults built on top of it, but also surpasses those asset issuers used for lending, such as Lido and Ether.fi.

To understand the reasons behind this, we need to break down the complete value chain of DeFi lending and, following the flow of funds and fees, reassess the value capture capabilities of each role.

DeFi Lending Value Chain Breakdown

The total annual revenue of the entire lending market has exceeded 100 million US dollars. This part of the value is not generated by a single link, but is composed of a complex stack: the underlying settlement blockchain, asset issuers, fund lenders, the lending protocol itself, and the Vaults responsible for distribution and strategy execution.

In previous articles, we have mentioned that the widespread use cases in the current lending market stem from basis trading and liquidity mining opportunities, and have dissected the key strategic logic behind them.

So, who is really supplying capital in the "real" DeFi lending market?

I analyzed the top 50 wallet addresses on Aave and SparkLend and labeled the major borrowers.

1. The largest borrowers are various types of treasuries and strategy platforms such as Fluid, Treehouse, Mellow, Ether.fi, Lido (also asset issuers). They have distribution capabilities to end users, helping users earn higher yields without having to manage complex strategies and risks themselves.

2. There are also large institutional funders like Abraxas Capital deploying external capital into similar strategies, with their economic model fundamentally akin to treasuries.

But treasuries are not the whole picture. In this chain, there are at least the following types of participants:

· Users: Deposit assets, seeking additional yield through treasuries or strategy managers

· Lending Protocol: Provides infrastructure and liquidity matching, earns interest from the borrowing side, and takes a certain percentage as protocol revenue

· Lenders: Capital providers, could be ordinary users or other treasuries

· Asset Issuers: Most on-chain lending assets are backed by underlying assets that generate revenue, some of which is captured by the issuer

· Blockchain Network: The underlying "railroad tracks" where all activities take place

Lending Protocols Earn More Than Downstream Treasuries

Take Ether.fi's ETH liquidity collateral treasury as an example. It is the second-largest borrower on Aave with an outstanding loan size of around 15 billion USD. The strategy itself is very typical:

· Deposit weETH (approx. +2.9%)

· Borrow wETH (approx. -2%)

· Treasury charges a 0.5% platform management fee on TVL

In Ether.fi's total TVL, approximately $215 million is actual net liquidity deployed on Aave. This portion of TVL generates approximately $1.07 million in platform fee revenue for the treasury annually.

However, at the same time, the strategy incurs approximately $4.5 million in interest cost to Aave annually (calculation: $1.5 billion borrowings × 2% borrowing APY × 15% reserve factor).

Even in one of the largest and most successful loop strategies in DeFi, the value captured by the lending protocol is still several times that of the treasury.

Of course, Ether.fi is also the issuer of weETH, and the treasury itself directly creates demand for weETH.

But even considering treasury strategy revenue + asset issuer revenue together, the economic value created by the lending layer (Aave) is still greater.

In other words, the lending protocol is the most value-enhancing part of the entire stack.

We can perform a similar analysis on other commonly used treasuries:

Fluid Lite ETH: 20% performance fee + 0.05% exit fee, no platform management fee. Borrowed $1.7 billion wETH from Aave, paid approximately $33 million in interest, of which about $5 million goes to Aave, Fluid's own revenue is close to $4 million.

Mellow protocol charges a 10% performance fee on strETH, borrowing volume of $165 million, TVL only about $37 million. Once again, we see that in terms of TVL, the value captured by Aave exceeds that of the treasury itself.

Let's look at another example: in SparkLend, the second-ranked lending protocol on Ethereum, Treehouse is a key participant, operating an ETH loop strategy:

· TVL around 34 million USD

· Borrowing at 133 million USD

· Performance fee charged only on margin yield above 2.6%

SparkLend, as a lending protocol, has a higher value capture potential in TVL terms compared to the treasury.

The treasury's pricing structure has a significant impact on its own captured value; however, for a lending protocol, its revenue depends more on the nominal size of borrowings, which is relatively stable.

Even with a shift to a dollar-denominated strategy, although the leverage is lower, higher interest rate levels often offset this impact. I do not believe the conclusion will fundamentally change.

In a relatively closed market, more value may flow to the curator, such as the Stakehouse Prime Vault (26% performance fee with incentives provided by Morpho). However, this is not the final state of the Morpho pricing mechanism, as the curator itself is also collaborating with other platforms for distribution.

Lending Protocol vs Asset Issuer

So, the question is: Is it better to be with Aave or with Lido?

This question is more complicated than comparing treasury models because the staked assets not only generate their own yield but also indirectly create stablecoin interest income for the protocol through the lending market. We can only make rough estimates.

Lido has about 44.2 billion USD in assets in the Ethereum core market, used to support lending positions, with an annualized performance fee income of about 11 million USD.

These positions roughly equally support ETH and stablecoin borrowing. Calculated with the current net interest margin (NIM) of about 0.4%, the corresponding lending revenue is about 17 million USD, which is already significantly higher than Lido's direct revenue (and this is at a historically low NIM level).

The True Moat of a Lending Protocol

If we were to compare using only the traditional financial deposit profit model, the DeFi lending protocol would seem to be a low-profit industry. However, that comparison overlooks where the true moat lies.

In an on-chain credit system, the value captured by lending protocols surpasses the downstream distribution layer and also, in aggregate, exceeds the upstream asset issuer.

Seen in isolation, lending may seem like a low-margin business; however, placed within the complete credit stack, it is actually the layer with the strongest value capture capability relative to all other participants—the custodian, issuer, distribution channels.

Original Article Link

Over the past 24 hours, the crypto market has shown strong momentum across multiple dimensions. The mainstream discussion has focused on Coinbase's official entry into the prediction market through the acquisition of The Clearing Company, as well as the intense controversy within the AAVE community regarding token incentives and governance rights.

In terms of ecosystem development, Solana has introduced the innovative Kora fee layer aimed at reducing user transaction costs; meanwhile, the Perp DEX competition has intensified, with the showdown between Hyperliquid and Lighter sparking widespread community discussion on the future of decentralized derivatives.

I. Mainstream Topics

1. Coinbase Acquires The Clearing Company, Officially Entering Prediction Market

This week, Coinbase announced the acquisition of The Clearing Company, marking another significant move to deepen its presence in this field after last week's announcement of launching a prediction market on its platform.

The Clearing Company's founder, Toni Gemayel, and the team will join Coinbase to jointly drive the development of the prediction market business.

Coinbase's Product Lead, Shan Aggarwal, stated that the growth of the prediction market is still in its early stages and predicts that 2026 will be the breakout year for this field.

The community has reacted positively to this, generally believing that Coinbase's entry will bring significant traffic and compliance advantages to the prediction market. However, this has also sparked discussions about the industry's competitive landscape.

Jai Bhavnani, Founder of Rivalry, commented that for startups, if their product model proves to be successful, industry giants like Coinbase have ample reason to replicate it.

This serves as a reminder to all entrepreneurs in the crypto space that they must build significant moats to withstand competition pressure from these giants.

2. Kalshi Launches Kalshi Research and Integrates BSC Network

Regulated prediction market platform Kalshi launched its research arm, Kalshi Research, this week, aimed at opening its internal data to the academic community and researchers to facilitate exploration of prediction market-related topics.

Its inaugural research report highlights Kalshi's outperformance in predicting inflation compared to Wall Street's traditional models. Kalshi co-founder Luana Lopes Lara commented that the power of prediction markets lies in the valuable data they generate, and it is now time to better utilize this data.

Meanwhile, Kalshi announced its support for the BNB Chain (BSC), allowing users to deposit and withdraw BNB and USDT via the BSC network.

This move is seen as a significant step for Kalshi to open its platform to a broader crypto user base, aiming to unlock access to the world's largest prediction market. Furthermore, Kalshi also revealed plans to host the first Prediction Market Summit in 2026 to further drive industry engagement and development.

3. AAVE Token Incentive Controversy Persists as Founders and Whales Increase Holdings Against the Market Trend

The AAVE community recently engaged in heated debates around an Aave Improvement Proposal (AIP) titled "AAVE Tokenomics Alignment Phase One - Ownership Governance," aiming to transfer ownership and control of the Aave brand from Aave Labs to Aave DAO.

Aave founder Stani Kulechov publicly stated his intention to vote against the proposal, believing it oversimplifies the complex legal and operational structure, potentially slowing down the development process of core products like Aave V4.

The community's reaction was polarized. Some criticized Stani for adopting a "double standard" in governance and questioned whether his team had siphoned off protocol revenue, while others supported his cautious stance, arguing that significant governance changes require more thorough discussion.

This controversy highlights the tension between the ideal of DAO governance in DeFi projects and the actual power held by core development teams.

Despite governance disputes putting pressure on the AAVE token price, on-chain data shows that Stani Kulechov himself has purchased millions of dollars' worth of AAVE in the past few hours.

Simultaneously, a whale address, 0xDDC4, which had been quiet for 6 months, once again spent 500 ETH (approximately $1.53 million) to purchase 9,629 AAVE tokens. Data indicates that this whale has accumulated nearly 40,000 AAVE over the past year but is currently in an unrealized loss position.

The founder and whale's increased holdings during market volatility were interpreted by some investors as a confidence signal in AAVE's long-term value.

4. Top Articles: DeFi Curators and Ethereum Annual Summary

In this week's top article, Morpho Labs' "Curator Explained" detailed the role of "curators" in DeFi.

The article likened curators to asset managers in traditional finance, who design, deploy, and manage on-chain vaults, providing users with a one-click diversified investment portfolio.

Unlike traditional fund managers, DeFi curators execute strategies automatically through non-custodial smart contracts, allowing users to maintain full control of their assets. The article offered a new perspective on the specialization and risk management in the DeFi space.

Another widely circulated article, "Ethereum 2025: From Experiment to Global Infrastructure," provided a comprehensive summary of Ethereum's development over the past year. The article noted that 2025 is a crucial year for Ethereum's transition from an experimental project to global financial infrastructure. Through the Pectra and Fusaka hard forks, Ethereum achieved significant reductions in account abstraction and transaction costs.

Furthermore, the SEC's clarification of Ethereum's "non-securities" nature and the launch of tokenized funds on the Ethereum mainnet by traditional financial giants like JPMorgan marked Ethereum's gaining recognition from mainstream institutions. The article suggested that whether it is the continued growth of DeFi, the thriving L2 ecosystem, or the integration with the AI field, Ethereum's vision as the "world computer" is gradually becoming a reality.

II. Mainstream Ecosystem Updates

1. Solana: Launches Kora Fee Layer and propAMM Data Research

The Solana Foundation engineering team released a fee layer solution called Kora this week.

Kora is a fee relayer and signatory node designed to provide the Solana ecosystem with a more flexible transaction fee payment method. Through Kora, users will be able to achieve gas-free transactions or choose to pay network fees using any stablecoin or SPL token. This innovation is seen as an important step in lowering the barrier of entry for new users and improving Solana network's availability.

Additionally, a deep research report on propAMM (proactive market maker) sparked community interest. The report's data analysis of propAMMs on Solana like HumidiFi indicated that Solana has achieved, or even surpassed, the level of transaction execution quality in traditional finance (TradFi) markets.

For example, on the SOL-USDC trading pair, HumidiFi is able to provide a highly competitive spread for large trades (0.4-1.6 bps), which is already better than the trading slippage of some mid-cap stocks in traditional markets.

Research suggests that propAMM is making the vision of the "Internet Capital Market" a reality, with Solana emerging as the prime venue for all of this to happen.

2. Perp DEX: Hyperliquid vs. Lighter Competition Intensifies

The competition in the perpetual contract DEX (Perp DEX) space is becoming increasingly heated.

In its latest official article, Hyperliquid has positioned its emerging competitor, Lighter, alongside centralized exchanges like Binance, referring to it as a platform utilizing a centralized sequencer. Hyperliquid emphasizes its transparency advantage of being "fully on-chain, operated by a validator network, and with no hidden state."

The community widely interprets this as Hyperliquid declaring "war" on Lighter. The technical differences between the two platforms have also become a focal point of discussion: Hyperliquid focuses on ultimate on-chain transparency, while Lighter emphasizes achieving "verifiable execution" through zero-knowledge proofs to provide users with a Central Limit Order Book (CLOB)-like trading experience.

This battle over the future direction of decentralized derivatives exchanges is expected to peak in 2026.

Meanwhile, discussions about Lighter's trading fees have surfaced. Some users have pointed out that Lighter charged as much as 81 basis points (0.81%) for a $2 million USD/JPY forex trade, far exceeding the near-zero spreads of traditional forex brokers.

Some argue that Lighter does not follow a B-book model that bets against market makers, instead anchoring its prices to the TradFi market, and the high fees may be related to the current liquidity or market maker balance incentives. Providing a more competitive spread for real-world assets (RWA) in the highly volatile crypto market is a key issue Lighter will need to address in the future.

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