DeFi has evolved rapidly in recent years. One area that has gained significant traction is tokenised credit through DeFi lending protocols, allowing users to borrow digital assets without traditional intermediaries like banks.
As tokenized assets and real-world assets continue to enter the blockchain ecosystem, DeFi lending is gradually becoming more sophisticated, opening up new opportunities for individuals and institutions alike.
This article explores the fundamentals of DeFi lending, its core features, and five platforms that are shaping this space in 2025.
How Do DeFi Lending Platforms Work?
A DeFi lending platform is a decentralized protocol that enables users to lend or borrow crypto assets without going through centralized financial institutions.
These platforms rely on smart contracts, self-executing code deployed on blockchains like Ethereum, to automate the process, eliminating the need for credit checks, paperwork, or third-party approval.
Borrowers typically provide overcollateralized assets to secure loans, while lenders earn interest on assets they supply to liquidity pools. With the rise of tokenized RWAs like real estate or invoices, some platforms are also exploring hybrid models where real-world assets can back digital credit.
Key Features of DeFi Lending
DeFi lending protocols are not all built the same, but they tend to share several core characteristics:
- Permissionless Access: Anyone with a crypto wallet can participate, no bank accounts or KYC processes (in most cases).
- Automation: DeFi lending platforms operate through automated systems that manage lending, borrowing, and interest rate adjustments, providing users with efficient and transparent financial services.
- Collateralization: To mitigate default risks, borrowers are required to deposit assets that exceed the value of the loan they wish to obtain. This overcollateralization ensures that lenders are protected against market volatility and potential borrower defaults.
- Non-Custodial Control: Users retain control of their private keys and funds unless they’re actively deployed in a protocol.
- Variable & Algorithmic Interest Rates: Interest rates on DeFi platforms are determined by supply and demand dynamics. As the demand for borrowing increases or decreases, the interest rates adjust accordingly, ensuring a balanced and efficient market for both lenders and borrowers.
- Transparency: All transactions are recorded on-chain, providing full traceability and auditability. With the addition of tokenized assets, some protocols are now integrating credit scoring models, yield-bearing RWAs, and even under-collateralized loans, expanding the utility of on-chain lending.
For instance, platforms like Goldfinch are pioneering undercollateralized lending by assessing borrower creditworthiness through off-chain data, enabling access to capital for small businesses in emerging markets.
With the addition of tokenized assets, some protocols are now integrating credit scoring models, yield-bearing RWAs, and even under-collateralized loans, expanding the utility of on-chain lending.
DeFi Lending Yields & Strategies (How Much Can You Earn)
Instead of walking through the entire lending process, let’s talk about something more practical: returns and strategies.
Here’s a general idea of what lending yields look like on major platforms as of Q1 2025:
Strategies for Maximizing Returns
- Stablecoins (USDC, DAI, USDT): Yields range from 3% to 8% APY, depending on the platform and market conditions. Lending stablecoins is generally considered lower risk because of their price stability.
- ETH, BTC, and blue-chip crypto: Expect 2% to 6% APY. Returns are lower than for stablecoins, but you maintain exposure to appreciating assets.
- Governance tokens or newer altcoins: Riskier assets may offer double-digit yields (10–20%+), but carry more volatility and smart contract risk.
- Stablecoin Stacking: Focus on lending stablecoins across different platforms with the best rates.
- Lend and LP: Lend assets and simultaneously provide liquidity on AMMs for additional yield.
- RWA Exposure: Diversify by including RWA-focused platforms that offer fixed yields tied to real-world income (e.g., trade receivables, property rent).
- Lending Aggregators: Use yield aggregators like Yearn or Idle Finance to auto-optimize returns.
Top 5 DeFi Lending Platforms in 2025
1. Aave
Aave has long been a cornerstone of the DeFi lending ecosystem. It pioneered innovations like Flash Loans (instant, no-collateral borrowing repaid in one block) and introduced variable vs. stable borrowing rates for flexibility. As of Q1 2025, Aave holds a TVL (Total Value Locked) of over $9.5B, and supports lending for Ethereum, Avalanche, Optimism, and more.
Users can earn up to 5% – 10% APY on stablecoins depending on market conditions. Aave’s GHO stablecoin and plans for tokenized assets continue to push the protocol toward real-world integrations.
2. Compound
Compound offers a clean, straightforward lending experience, making it a popular gateway for new DeFi users. It’s known for its algorithmic interest model and support for a wide range of ERC-20 tokens. As of early 2025, Compound manages around $2.1B in TVL.
Lenders typically earn 3% – 8% APY on stablecoins like USDC, with lower returns on volatile assets. While not as feature-heavy as Aave, Compound remains a reliable choice for passive income strategies.
3. MakerDAO
MakerDAO is unique in that it mints DAI, a decentralized stablecoin, against collateralized crypto. Users lock ETH, wBTC, or even RWAs into Maker Vaults to generate DAI loans. This model helps maintain DAI’s peg to the US dollar, even during high volatility.
With $5.4B+ in collateral locked and a growing emphasis on RWA adoption, Maker now includes tokenized T-bills and real estate as part of its lending collateral. Real-world examples include BlockTower’s credit fund, which enables institutional-grade debt investments on-chain, and the Andromeda Vault, which provides access to U.S. Treasury-backed yield strategies through tokenized vaults.
Yields vary, but participating in Maker’s ecosystem can earn 4% – 7% APY, depending on the asset type and vault strategy making it one of the most diversified and evolving lending models in DeFi.
4. Uniswap (v4 Lending Features)
While Uniswap is best known as a DEX, its latest versions have added lending and liquidity pool functionality. By using its automated market maker (AMM) design for lending, Uniswap enables users to deposit assets and earn interest or borrow directly from pools.
Currently, Uniswap’s lending modules are in early stages, with pilot pools offering 3% – 6% APY for stablecoins and 1% – 3% for majors like ETH. Uniswap’s integration with tokenized assets is expected to expand in 2025, giving more ways to deploy capital.
5. Lido
Lido isn’t a traditional lending protocol, but it plays a vital role in the DeFi lending ecosystem through liquid staking. Users can stake ETH, MATIC, or SOL via Lido and receive staked versions (like stETH, stMATIC, stSOL) which they can then use across lending protocols like Aave or Compound as collateral or yield-generating assets.
This dual utility staking rewards plus DeFi yield makes Lido a powerful enabler of multi-layered returns. For instance, users staking ETH via Lido currently earn 3.7% — 4.2% APY, and when those stETH tokens are used in lending platforms, they can stack an additional 1% – 3% APY, depending on demand.
As of early 2025, Lido holds over $15B in TVL, making it the largest liquid staking protocol and a foundational layer for yield strategies across DeFi lending markets.
Real Returns, Real Risks – DYOR
Defi lending is evolving what started as a crypto native borrowing has now expanded to include tokenised invoices, supply chain credit, and undercollateralised loan backed by reputation or unchain performance.
It’s a sign that the boundary between traditional credit and decentralized finance is becoming increasingly blurred, but as always before locking any asset, DYOR (Do Your Own Research).