A recent analysis by IOSG Ventures provides a comprehensive overview of the shifting landscape of on-chain yields, highlighting a significant divergence in product performance between market cycles. According to the report, titled "A Panorama of On-Chain Yields," investor behavior in 2026 is increasingly defined by a flight to quality. While bull markets typically lift the Total Value Locked (TVL) across all decentralized finance (DeFi) sectors, bear market conditions are driving a pivot toward yield-bearing stablecoins and fixed-income products that offer lower underlying risks and more predictable returns.
Stability vs. Risk in the Yield Ecosystem
The research identifies a clear hierarchy of risk among modern yield products. As of March 2026, the market has seen a maturation of yield-bearing assets, yet many high-reward strategies remain vulnerable to structural flaws. The IOSG analysts point out several critical areas of concern:
- Funding Rate Strategies: Delta-neutral strategies, such as those employed by Ethena (sUSDe), often see drastically reduced yields during bearish periods as demand for long leverage evaporates.
- Market-Making Vaults: These products face heightened risks of market manipulation and toxic flow in low-liquidity environments.
- RWA Protocols: The integration of Real-World Assets (RWAs) has introduced third-party opacity and liquidity constraints that can complicate exits during market stress.
The Revenue Potential of Native L1 Stablecoins
One of the most provocative findings in the source material concerns the economic architecture of Layer 1 (L1) blockchains. Currently, most networks rely heavily on third-party providers like Tether (USDT) or Circle (USDC). However, IOSG suggests that if L1 blockchains were to deploy and successfully scale their own native stablecoins, their protocol revenue could potentially multiply by 2 to 3 times. This shift would allow networks to capture the seigniorage and interest income currently flowing to centralized issuers.
Given the current stablecoin supply situation, if all L1 blockchains were to deploy their own stablecoins instead of relying on USDT or USDC, their revenue could potentially multiply 2-3 times.
Transition to the "Application Era"
The evolution of crypto credit is also driving a shift in how protocols interact with users. Leading DeFi projects are increasingly adopting a "backend" model, where they provide the underlying yield infrastructure for new L1/L2 ecosystems and consumer-facing mobile applications. This transition is expected to streamline the user experience, allowing retail investors to access sophisticated financial services without navigating complex on-chain interfaces.
In conclusion, the on-chain yield environment is moving away from speculative "yield farming" toward a more institutional-grade crypto credit market. As the supply of stablecoins continues to grow, the ability of protocols to offer transparent, sustainable, and risk-adjusted returns will be the primary factor in determining which platforms maintain their TVL during future market contractions.
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For educational purposes only. Nothing here constitutes financial or investment advice. Crypto markets are highly volatile — always DYOR before making any decisions.
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