Crypto Yield Products Closing the Gap with TradFi: Report

Executive Summary

Cryptocurrency-based yield products still lag behind their traditional finance (TradFi) counterparts, but emerging blockchain sectors like liquid staking tokens (LSTs) and real-world assets (RWAs) are steadily closing the gap, according to a new report co-authored by RedStone Oracles, Gauntlet, Stablewatch, and the Tokenized Asset Coalition.

The report highlights that only 8% to 11% of cryptocurrencies offer passive yield-generating models, indicating a significant disparity compared to the 55% to 65% of TradFi assets that do. This represents roughly a fivefold difference. However, stablecoins, RWAs, and "blue-chip" yield tokens are rapidly shrinking decentralized finance’s (DeFi) passive income gap.

Emerging regulations, such as the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, passed in July, are helping the industry catch up. This is resulting in a rising demand for both yield-bearing stablecoins and RWAs, the report says. The GENIUS Act established clear rules for stablecoin collateralization and mandates compliance with Anti-Money Laundering laws.

"As clarity emerges, yield-bearing stablecoins are exploding: market capitalization is up 300% YoY, with new protocols launching monthly to capture the opportunity."

RWAs, which are tokenized versions of traditional assets like bonds or funds, are also introducing new avenues for passive income as major institutions recognize the efficiency of on-chain settlement.

Ether and Solana LSTs Gain Traction

Blue-chip yield tokens, such as Ether (ETH) LSTs and Solana (SOL) LSTs, are also gaining traction by creating more capital efficiency for cryptocurrency stakers.

ETH LSTs rose from six million to 16 million in the two years leading up to November, gaining $34 billion in notional value based on today’s prices.

LSTs, such as Lido’s stETH (STETH), offer crypto stakers an equivalent of the staked token, which can be traded or deployed in other DeFi protocols, thereby creating more capital efficiency.

Crypto Yield-Bearing Assets Poised for “Exponential Growth” in the Coming Months

Crypto yield-bearing assets are poised for “exponential growth” in the coming months and are set to benefit from the gap between DeFi and TradFi, according to the report, which called it “crypto’s greatest opportunity.”

“As the ‘Crypto-as-infrastructure’ thesis gains traction and on-chain finance proves its superior capital efficiency, yield-generating crypto assets are positioned for exponential growth,” as institutional capital will seek more “efficiency,” it said.

Yield-generating tokens, such as Solana LSTs, are also gaining traction among institutions, as they can earn a passive yield of approximately 4% on top of their holdings.

Much like Ether, Solana LST supply doubled, from 20 million in January 2024 to about 40 million at the time of writing, with a total of 67% of the Solana token supply now locked in staking smart contracts.