Weekly: DeFi Growth Through a Macro Lens

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Weekly Summary

We cover:

• How Lending sector generates revenue

• Double clicking on AAVE as a case study

• The three variables that drive revenue

• Why the current macro cycle is a tailwind for all three

• Market update

DeFi Growth Through a Macro Lens

Sector-Level Divergences

We’ve highlighted before the divergence between fundamentals and valuations across various sectors, including Lending.

For example, today, we’re seeing the largest divergence between sector-wide active loans and fully-diluted valuations.

If we look at specific example within Lending such as AAVE, its revenue and upside potential is contingent a variety of mechanisms which respond differently to where we are in the broader market cycle.

How Aave makes money

Aave’s revenue is essentially a function of three things: borrow volume, the prevailing interest rate environment, and the share of interest that accrues to the protocol treasury. In a higher-yield, wider-spread environment, all three move up simultaneously.

In a tightening cycle, the reverse is true — as we saw clearly when the Fed hiked aggressively from 2022, Aave’s active loan volume fell sharply, and has only recently begun to recover as rates have come off their peak.

Why the Current Environment is Interesting

Three variables do most of the heavy lifting in driving Aave’s revenue:

• Borrow volume: the primary revenue driver. Historically, the bulk of active loan growth has occurred after ISM crosses 50 — a threshold we have recently passed. 93% of last cycle’s loan growth came after that point.

• Borrow rates: currently averaging around 3.5% blended across markets. At prior cycle peaks, blended rates reached 10–15% — a difference that flows directly into protocol revenue.

• Valuation multiple: Aave currently trades at around 20x price-to-revenue. At prior cycle peaks, that multiple has exceeded 40x as risk appetite and confidence in forward earnings increases.

In a conservative scenario, where only borrow volume recovers, the revenue impact is meaningful on its own. In a more constructive environment — where all three variables move together — the combined effect has historically been a factor of 10x or more from trough to peak.

Broader Implications

DeFi applications can have clear and measurable revenue models that are directly leveraged to the macro and credit cycle conditions that appear to be turning. This thinking extends beyond lending — protocols sitting at the centre of on-chain credit, trading, and derivatives activity all stand to benefit as borrow demand, volumes, and risk appetite return.

Market Update

Global market capitalisation has been finding good support at $2.25T where the market has been unable to sustain a breakdown in technicals since the Middle East conflict began.

Global Crypto Market Capitalisation (weekly).

For BTC, we’ve seen 5 weeks of weekly closes >$65k.

So far, this week appears to be no different (+2%). Contrary to many expectations, BTC is finding some stability at these mid-60 levels despite ongoing headlines of escalation including ground troop operations by the US.

The BTC/Gold and Crypto/QQQ ratios, which bottomed on the weekend when the conflict started, are up +18% and +10%, respectively.

BTC/USD (weekly).

BTC/Brent Crude ratio has been finding support at ~620 over the past 2 weeks.

BTC’s wick to <$65k late Sunday drove the ratio to briefly dip below this level before strongly re-bounding back above this support in <1 hour.

Either a sustained break below these levels would signal the market placing further pressure on long duration assets, or the lows are in and the risk/macro backdrop begins to stabilise.

BTC/Brent Crude ratio (hourly).

What feels more clear is market conviction will continue to turn quickly — geopolitical developments, macro data, or a shift in liquidity conditions can reprice risk assets sharply in either direction and volatility will remain elevated.

State of the Yields

Stablecoin lending yields:

• ~2.18% on Aave (USDC), still below the ~3.7% 3-month T-bill rate. Variable-rate premiums remain compressed.

Fixed-rate DeFi lending: yield premium in fixed markets marginally expanding from last week:

• Pendle sNUSD: 8.9% (Jun 2026)

• Pendle sUSDAi: 7.4% (Jun-Oct 2026 maturities)

• Pendle stUSDS: 5.7% (Jun 2026)

• sUSDe holding: ~4.7%, up from ~3.5% last week

ETH yield benchmarks:

• Lido staking: ~2.38% (down from 2.5%)

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