There’s a quiet transformation underway in decentralized finance (DeFi).
While DeFi’s previous bull market was driven by eye-watering—and dubious—yields and speculative frenzy, the current growth has been powered by the sector becoming a backend financial layer for user-facing apps and increasing institutional participation, according to a Wednesday report by analytics firm Artemis and on-chain yield platform Vaults.fyi.
The total value locked (TVL) on top DeFi lending protocols—including Aave, Euler, Spark and Morpho—has surged past $50 billion and approaching $60 billion, growing 60% over the past year, the report showed. This growth has been driven by rapid institutionalization and increasingly sophisticated risk management tools.
“These are not merely yield platforms; they are evolving into modular financial networks undergoing rapid institutionalization,” the authors said.
The ‘DeFi mullet’
One of the key trend recently the report highlighted is user-facing applications quietly embedding DeFi infrastructure in the backend to offer yield or loans. These features are abstracted away from users creating a more seamless experience, a trend often called the “DeFi mullet:” fintech front-end, DeFi backend, the report said.
Coinbase users, for instance, can borrow against their bitcoin
holdings powered by DeFi lender Morpho’s backend infrastructure. More than $300 million in loans have already originated via this integration as of this month, the report pointed out.
Bitget Wallet’s integration with lending protocol Aave offers a 5% yield on USDC and USDT holdings across chains without leaving the crypto wallet app. PayPal is also doing something similar with its PYUSD stablecoin, offering yields near 3.7% to PayPal and Venmo wallet users, albeit without the DeFi element.
The report said crypto-friendly fintech firms with large user bases, such as Robinhood or Revolut, may also adopt this strategy and offer services like stablecoin credit lines and asset-backed loans through DeFi markets, creating new fee-based revenue streams.
Tokenized RWAs in DeFi
Increasingly, DeFi protocols are introducing use cases for tokenized versions of traditional instruments such as U.S. Treasuries and credit funds, also known as real-world assets (RWA).
These tokenized assets can serve as collateral, earn yield directly or be bundled into more complex strategies.
Tokenization of investment strategies is also becoming popular. Pendle, a protocol that lets users split yield streams from principal, now manages over $4 billion in total value locked, much of it in tokenized stablecoin yield products.
Meanwhile, Ethena’s sUSDe and similar yield-bearing tokens have introduced products that deliver returns above 8% through strategies like cash-and-carry trades, all while abstracting away the operational burden for the end user.
Rise of on-chain asset managers
A less visible but critical trend highlighted in the report is the rise of crypto-native asset managers. Firms like Gauntlet, Re7 and Steakhouse Financial allocate capital across DeFi ecosystems using professionally managed strategies, resembling the role of traditional asset managers.
These players are deeply embedded in DeFi protocol governance, fine-tune risk parameters and deploy capital across a range of structured yield products, tokenized real-world assets (RWAs) and modular lending markets.
The report noted that the sector’s capital under management has grown fourfold since January—from $1 billion to over $4 billion.
