Stablecoins have evolved from being a tool for crypto trading to becoming infrastructure. The core questions we are asked daily include: What exactly are the use cases for stablecoins? What capabilities can they offer that traditional fiat currencies cannot achieve? The most natural starting point is to view stablecoins as an entirely new payment infrastructure and evaluate their potential benefits—such as instant, 7×24 settlement—especially in the context of cross-border payments and remittances.
While clear opportunities already exist within the current payment ecosystem, stablecoins are also tasked with driving the modernization and automation of global lending and capital markets.
What makes stablecoins unique is their position at the intersection of three massive markets: payments, lending, and capital markets.
As stablecoins enhance the efficiency of cross-border payments, they could become the cornerstone of emerging cross-border lending and a global credit system: leveraging smart contracts to connect global fund providers and borrowers while automating the entire lifecycle of loan agreements.
Although the integration of stablecoins as 'programmable money' into mainstream finance is still in its early stages, the underlying smart contract infrastructure has been openly deployed, battle-tested, and continuously scaled within the decentralized finance (DeFi) ecosystem. Thanks to the public verifiability of blockchain, we can observe and track the scale and performance of loans issued through smart contracts and denominated in stablecoins. For instance, over the past five years, stablecoin-denominated loans have exceeded $6.7 trillion cumulatively, with significant year-over-year growth.
It is often said that the ultimate goal of payments is lending. In this regard, the programmable money potential of stablecoins, built on blockchain and smart contracts, holds immense appeal for revolutionizing lending models and improving access to global credit.
If previous on-chain lending was more suited to cryptocurrency trading scenarios, then with the passage of stablecoin legislation, future on-chain lending will gradually become deeply embedded in real-world financial payment scenarios. Visa’s recent announcement of its Visa Direct service introducing stablecoin-based pre-funding is the best evidence of this trend. Visa also released a research report exploring how programmable money, enabled by stablecoins integrated into smart contract-based lending protocols, can reshape the global lending ecosystem—making it more transparent, efficient, and accessible.
This is also a direction we have been actively exploring recently, whether in 2C global consumer finance scenarios or 2B cross-border supply chain finance scenarios. In these explorations, we have found that in Global South markets, the demand for lending remains far from being met! Meanwhile, stablecoin payment channels can provide tremendous convenience for these needs. Perhaps the convergence of financial payments and inclusive finance in an on-chain future is about to unfold before our eyes.
The true revolution is not in electronic money, but in electronic trust.
——Dee Hock, Founder of Visa
I. What is On-Chain Lending?
On-chain lending represents a key application scenario within the crypto ecosystem, having successfully established a strong product-market fit both on-chain and off-chain. It plays a crucial role in building the financial ecosystem for digital assets and serves as a subset of decentralized finance (DeFi): a global credit market driven by stablecoins, operating automatically 24/7, and always open.
On-chain lending reconstructs financial services entirely by replacing traditional financial institutions with smart contracts to automate financial intermediation. It enables users to gain liquidity by pledging assets, which can then be deployed within decentralized finance (DeFi) or traded across on-chain and off-chain venues.
When combined with stablecoins, these protocols facilitate new lending models characterized by automated execution, near-instant settlement, and borderless capital flows—essentially creating a global credit market that never closes.
The operational mechanism of on-chain stablecoin lending is as follows:
- Lenders deposit stablecoins (such as USDC or USDT) into lending pools managed by smart contracts and earn interest on their deposits accordingly.
- Smart contracts autonomously handle all processes associated with traditional loan services: calculating interest rates, monitoring collateral values in real time, executing liquidations when the collateralization ratio falls below the required threshold, and distributing earnings to lenders.
- Borrowers must provide collateral (typically crypto assets or tokenized real-world assets) to access funds, with the collateral being locked within the smart contract.
1.1 The Role of Stablecoins & New Risk Models
- Enhancing Capital Market Efficiency
- Smart contracts continuously monitor the value of collateral and automatically adjust interest rates based on supply and demand algorithms—rates decrease when capital utilization is low and increase when liquidity is tight.
- Building an Accessible 24×7 Credit Market
- These global markets never close, operate automatically, and provide transparent pricing visible to all participants. Anyone with internet access can lend or borrow without requiring permission from a central authority.
- Providing a Reliable Value Anchor
- Stablecoins maintain stability by being pegged to fiat currencies while offering the flexibility and efficiency of programmable money, providing a trusted unit of account and settlement for both borrowers and lenders.
On-chain lending fundamentally transforms risk management. Traditional lending typically assesses counterparty risk through credit checks and contractual terms; on-chain lending mitigates such specific risks through automatic liquidation—protocols do not rely on the borrower’s willingness to repay but trust that smart contract code will enforce loan terms.
This does not eliminate risk but rather transforms it:
- Counterparty risk can be managed through smart contracts;
- Technical risks have become a key focus. Liquidity providers no longer analyze balance sheets but must evaluate the security audits, governance structures, and data source reliability of protocols.
1.2 Business Model of On-Chain Lending
On-chain lending services are primarily delivered through two channels: Decentralized Finance (DeFi) and Centralized Finance (CeFi), each with its unique characteristics and offerings.
Below is a brief overview of CeFi and DeFi lending:
A. Centralized Finance (CeFi)
CeFi refers to off-chain centralized financial institutions that provide lending services for cryptocurrencies and related assets, with some utilizing on-chain infrastructure or operating entirely on-chain. CeFi lending mainly includes the following three types:
- Over-the-Counter (OTC): OTC services provided by centralized institutions offering a range of tailored lending solutions and products. OTC transactions are conducted bilaterally, allowing lenders and borrowers to reach customized agreements. Terms such as interest rates, maturity dates, and Loan-to-Value ratios (LTV) can be adjusted based on the specific needs of both parties. These services are typically available only to accredited investors and institutions.
- Prime Brokerage: An integrated trading platform offering margin financing, trade execution, and custody services. Users can withdraw margin financing from brokers for other purposes or keep it on the platform for trading activities. Brokers generally provide financing services for a limited range of crypto assets and crypto ETFs.
- Onchain Private Credit: Allows users to pool funds on-chain and deploy them through off-chain agreements and accounts. In this case, the underlying blockchain essentially becomes a platform for crowdfunding and bookkeeping for off-chain credit needs. Debt is often tokenized, either as collateralized assets or directly represented by tokens denoting shares in debt pools. The scope of fund usage is usually relatively narrow.
B. Decentralized Finance (DeFi)
DeFi refers to applications running on blockchain networks that are powered by smart contracts, allowing users to borrow and lend using cryptocurrency as collateral, earn returns through lending, or even obtain leverage in trading. DeFi lending is characterized by 24/7 operations, a wide range of assets available for lending and collateral, and full transparency with open auditability by anyone.
- Lending Applications: On-chain applications enable users to deposit collateral assets (such as BTC and ETH) and borrow other cryptocurrencies against them. Loan terms are pre-determined based on the value of the provided collateral and the borrowed asset through the application's risk assessment. Lending via these applications is analogous to overcollateralized lending in the traditional sense.
- Collateral Debt Position Stablecoins: Dollar-pegged stablecoins backed by a single cryptocurrency or a basket of cryptocurrencies with overcollateralization. The mechanism is similar to overcollateralized lending, but upon depositing collateral, users generate a synthetic asset.
- Decentralized Exchanges: Some decentralized exchanges allow users to access leverage to amplify trading positions. Although the functionalities of decentralized exchanges vary, their role in providing margin is similar to that of CeFi brokers. However, funds typically cannot be transferred out of decentralized exchanges.
II. Key Data and Insights
The global on-chain lending market is expanding rapidly, with its monthly scale reaching USD 51.7 billion in August 2025 and more than 81,000 active borrowers, demonstrating the size and growth rate of stablecoin-driven credit markets.
2.1 Trading Volume and Borrowers
In August 2025, a total of USD 51.7 billion worth of stablecoins were lent out, bringing the cumulative total of stablecoin lending since January 2020 to over USD 670 billion.
From 2022 to early 2024, on-chain stablecoin lending activity declined significantly due to the collapses of Terra Luna, FTX, and several centralized crypto lending institutions; however, it began recovering at the end of 2024 and has reached new highs in recent months.
This recovery is also reflected in the number of loans and unique borrower addresses: in August 2025, the number of loans reached 427,000, with 81,000 borrowing addresses.
2.2 Trading Volume by Sector
A detailed breakdown shows that USDC and USDT dominate, accounting for over 99% of the historical cumulative lending volume, consistent with their share of over 98% in the total supply of surveyed stablecoins.
In the previous cycle, lending primarily occurred on Ethereum, Avalanche, BSC, and Polygon. To date in this cycle, Ethereum and Polygon remain dominant, accounting for 85% combined in August 2025; Base, Arbitrum, and Solana gained market share, reaching a combined 11% during the same period.
At the protocol level, Aave and Compound accounted for 89% of the trading volume in August 2025, maintaining their long-term leading position; Morpho, after launching V1 in early 2024 and V2 in June 2025, saw its share increase to 4%.
2.3 Average Loan Size
During the trough of the last cycle, the average loan amount declined correspondingly but has since rebounded to USD 121,000 in August 2025 as the market recovered, indicating a potential increase in institutional borrowing demand.
2.4 Outstanding Loans and Deposits
The active loan balance and the supply of stablecoins deposited into lending protocols have also rebounded and exceeded the previous peak. In August 2025, an average of $17.5 billion in stablecoins was retained within protocols, of which $14.8 billion (84%) was lent out as loans.
2.5 Interest Rate Levels
Due to price volatility of non-stablecoin collateral such as ETH and BTC, on-chain stablecoin lending rates have fluctuated, with borrower annual percentage rates (APR) ranging from below 2% to above 16%.
The average rates in August 2025 were: borrowing APR at 6.4%, deposit APY at 5.1%; close to historical averages—over the past 12 months, the average borrowing APR was 6.7%, deposit APY was 5.0%, and the overall historical averages were borrowing APR at 6.4% and deposit APY at 4.8%. This indicates that, supported by high-quality collateral, on-chain interest rates can differ from traditional market lending rates by only a few percentage points.
III. Key Market Participants
3.1 Historical Key Participants
The figure above highlights some major past and present participants in CeFi and DeFi crypto-lending markets. In 2022 and 2023, as cryptocurrency asset prices plummeted and market liquidity dried up, several of the largest CeFi lenders collapsed. The most notable among them were Genesis, Celsius Network, BlockFi, and Voyager, all of which filed for bankruptcy within two years. This led to an estimated 78% contraction in the total size of CeFi and DeFi lending markets from their 2022 peak to the bear market trough, with outstanding CeFi loans declining by 82%.
The chart below compares some of the largest CeFi crypto lending institutions in history. Some companies offer multiple services to investors, such as Coinbase, whose main business is an exchange but also provides credit services through over-the-counter cryptocurrency loans and margin financing.
Although on-chain and off-chain crypto lending did not become widely adopted until late 2019/early 2020, some current and historically significant players were established as early as 2012. Among them, Genesis stands out, having issued loans worth up to USD 14.6 billion since its founding in 2013. On-chain lending giants like Aave, Sky (formerly MakerDAO), and Compound Finance launched on Ethereum between 2017 and 2018. The emergence of these on-chain lending solutions was facilitated by the advent of Ethereum and smart contracts, which officially went live in July 2015.
The end of the 2020-2021 bull market marked the beginning of an 18-month period of turbulence in the on-chain lending market, during which numerous bankruptcies occurred. Key events during this period included the depegging of Terra’s stablecoin UST, which eventually became worthless along with LUNA; the depegging of stETH, the largest liquid staking token (LST) on Ethereum; and the shares of the Grayscale Bitcoin Trust (GBTC) beginning to trade at a discount to their net asset value (NAV) after years of trading at a premium.
3.2 Innovative Lending Models Under Stablecoin Legislation
The recent surge in stablecoin lending highlights new use cases for stablecoins within on-chain finance. Protocols like Morpho aggregate global liquidity through stablecoins, optimizing lending markets, while Rain, a card issuer linked to stablecoins, leverages platforms such as Credit Coop and Huma Finance to fund its credit programs. In addition to card solutions, Credit Coop also offers loans based on cash flow and revenue, while Huma utilizes stablecoins for more efficient trade financing and faster cross-border payments. Leading lending protocols are using stablecoins to power card projects, finance cross-border payments, and aggregate lending markets, showcasing viable commercial applications beyond cryptocurrency capital market use cases.
A. Morpho
Morpho is a lending protocol that aggregates demand and liquidity across platforms. As backend lending infrastructure, Morpho integrates with third-party platforms and wallets such as Coinbase, BitPanda, Safe, Ledger, and Trust Wallet, as well as banks like Societe Generale. With Morpho’s “engine,” users of these platforms can share the same pool of demand and liquidity: for example, USDC lent by one user on Coinbase might have originally been deposited by another user via a Ledger wallet. This model replaces traditional fragmented bilateral or trilateral lending relationships with a single multilateral lending market, thereby improving lending rates and capital efficiency.
Currently, Morpho's monthly stablecoin lending volume reaches USD 1.7 billion, with outstanding stablecoin loans amounting to USD 1.9 billion; of which USDC accounts for USD 1.6 billion (90%) in lending and USD 1.8 billion (91%) in outstanding loans. The collaboration with Coinbase has been the primary driver of this USDC activity: through Coinbase integration, Morpho has facilitated over USD 1 billion in USDC loans, collateralized by more than USD 1.2 billion in cbBTC.
By aggregating USDC liquidity across platforms, Morpho offers an annualized borrowing rate for USDC on Ethereum as low as 4–5%, approximately half that of other crypto-backed lending options.
For exchanges, wallets, and fintech companies partnering with Morpho, the protocol enhances user retention: in-app financial services allow users to borrow without transferring assets, rather than selling them. Since Morpho’s market operates autonomously on-chain, loan and collateral information is fully transparent, providing participants with greater trust and more comprehensive data to manage market and counterparty risks.
B. Credit Coop
Credit Coop is a structured finance protocol that supports borrowing and lending backed by on-chain cash flows. Its smart contracts enable lenders to automatically receive a share of profits from borrowers’ “revenue-generating contracts”; in the event of borrower default, the contract immediately redirects 100% of the income stream to the lender, achieving trustless recourse.
Rain, a stablecoin credit card issuer and Visa partner, secures liquidity through Credit Coop: it borrows funds backed by future repayment receivables from cardholders to meet daily operational needs. As an issuer, Rain must settle cardholder spending amounts with Visa daily, while user repayments typically return at month-end. Credit Coop’s “Spigot” technology establishes programmable lockboxes for these future repayment streams, enabling Rain to borrow funds in advance without additional collateral, addressing working capital timing mismatches. To date, Rain has cumulatively borrowed or repaid over USD 175 million in USDC via Credit Coop, and this figure continues to accelerate as Rain’s user base grows.
On the acquiring side, Coinflow, a crypto-native payment processor, also leverages Credit Coop to provide merchants instant advances in USDC, ensuring “funds are available before card payments are settled.”
Overall, Credit Coop’s business volume has significantly increased in recent months: in August 2025, lending exceeded USD 30 million, with outstanding loan balances surpassing USD 8.8 million; particularly in August, there was a surge, with growth expanding on Ethereum and Base chain beginning to contribute substantial new volumes.
Credit Coop’s repayment flow closely matches its loan issuance (with repayments exceeding USD 29 million in August 2025), as the protocol continuously collects from borrowers’ income streams and distributes them to lenders in real time.
For lenders, Credit Coop offers an annualized yield of 12–15%, with full transparency on-chain, allowing real-time monitoring of loan performance. Additionally, programmatic control over revenue-generating contracts ensures trustless recourse. The protocol also natively integrates fiat on-ramps, enabling institutions to conveniently begin lending via bank wire transfers and earn on-chain yields.
C.HumaFinance
Huma Finance is a 'payment financing' platform utilizing blockchain and stablecoins, specializing in compliant cross-border payment financing, stablecoin credit card financing, trade financing, and other financing solutions. Its PayFi network provides enterprises with three types of stablecoin credit facilities: revolving credit lines, accounts receivable-backed credit lines, and accounts receivable factoring facilities. Currently, approved businesses primarily leverage Huma to accelerate cross-border payments and supplier settlements, allowing recipients to receive stablecoin funds immediately, thereby eliminating the need for upfront capital, capital lock-up, and related costs and delays.
Enterprises only pay a daily fee (typically 6–10 basis points) for the duration of the loan balance. Due to rapid capital turnover (generally 1–5 days), the same capital can be reinvested frequently, enabling funders on Huma to achieve annualized returns exceeding 10%.
Huma’s business has significantly accelerated since the second half of 2024. Current monthly transaction volumes are approximately USD 500 million, with lending and repayments roughly split evenly. Active liquidity has reached USD 140 million, of which USD 98 million in PayFi assets are in outstanding loans, predominantly used for cross-border payment financing scenarios.
IV. Outlook on Future Opportunities
The intersection of stablecoins and on-chain lending gives rise to three cutting-edge opportunities, which we anticipate will reshape traditional finance over the next decade.
4.1 Tokenization of Assets to Unlock Collateral Pools
The tokenization of real-world assets (RWAs) is creating new frontiers for on-chain lending collateral. This market has grown from USD 5 billion in December 2023 to USD 12.7 billion today; McKinsey forecasts that the total volume of tokenized assets could reach USD 1–4 trillion by 2030.
BlackRock's BUIDL Fund exemplifies institutional adoption, with its tokenized U.S. Treasury holdings reaching a record market value of $2.9 billion in May 2025. Multiple on-chain lending protocols have become partners in its revenue distribution. Franklin Templeton's OnChain U.S. Government Money Market Fund (BENJI) has added an additional $800 million in tokenized bonds, while nearly 30% of MakerDAO’s $6.6 billion balance sheet now comes from real-world assets.
Traditional assets such as corporate bonds, private credit, and real estate are set to become collateral in a 7×24 global lending market, bridging over $40 trillion in traditional credit markets with the efficiency and transparency of programmable money, thereby creating new sources of liquidity for traditional assets. Large asset management firms are piloting scalable solutions, with the potential to tokenize trillions of dollars' worth of addressable traditional assets over the next decade.
4.2 Crypto-Asset Collateral Powers the Next Generation of Credit Programs
Credit card programs are expanding into a new model where crypto-assets serve as collateral, unlocking incremental market opportunities. Pioneer ether.fi is launching a non-custodial credit card that allows users to retain ownership of their assets, avoid capital gains tax, and maintain exposure to potential price appreciation while gaining liquidity based on their crypto holdings. Smart contracts monitor collateral in real time, automatically triggering margin calls and risk mitigation actions. Banks and private credit funds can act as liquidity providers, channeling institutional capital through programmable lending protocols rather than traditional credit facilities, creating new yield opportunities for institutional investors while reducing counterparty risk through transparent and automated collateral management.
4.3 On-Chain Identity Enables Large-Scale Uncollateralized Lending
One of the most transformative opportunities lies in uncollateralized lending based on on-chain behavior and digital identity. While the current over-collateralization model is secure, it suffers from low capital efficiency, restricting the market to borrowers who already hold substantial assets. The next wave of innovation focuses on solving this issue through on-chain identity and credit scoring systems.
Emerging solutions build credit profiles by analyzing wallet transaction history, asset holdings, and interactions with other protocols, while leveraging technologies like zero-knowledge proofs to protect user privacy. Platforms such as 3Jane, Providence, and Credora are experimenting with credit evaluation methods based on verifiable on-chain behavior. Future protocols could offer uncollateralized or pure credit loans based on reputation and credit records, potentially opening up entirely new addressable markets and integrating the full spectrum of traditional credit products into this efficient on-chain architecture.
4.4 Another Spring for Fintech
Whether it’s the collateralized lending of tokenized assets/crypto-assets (on-chain liquidation logic) or the credit lending logic enabled by on-chain and off-chain digital identities, the upgrades, iterations, and evolution of these technologies ultimately need to serve the parties holding the largest use-case scenarios. This aligns with the logic of stablecoin issuance and distribution. Therefore, we believe flexible fintech companies will integrate innovative technologies within their specific contexts to create more value, while financial institutions will need to strike a balance between regulatory compliance and innovative growth.
V. Conclusion
The evolution of on-chain lending markets represents a significant milestone in the maturation of digital asset infrastructure. Lending capabilities have become a foundational pillar of both decentralized and centralized crypto finance, creating important market mechanisms that run parallel to traditional financial systems while introducing novel technological innovations.
The autonomy and algorithmic nature of on-chain lending infrastructure has established a new paradigm for market operations, which runs transparently and continuously while implementing programmatic risk management. This technical framework represents a major breakthrough over traditional financial systems, with the potential to enhance efficiency and reduce intermediary risks.
Looking ahead, the on-chain lending market appears poised for a new phase of growth, characterized by improved risk management frameworks, increased institutional participation, and clearer regulatory guidelines. The integration of traditional financial expertise with blockchain innovation signals that on-chain lending services will become increasingly mature and reliable, better positioned to penetrate real-world business scenarios while retaining the unique advantages of blockchain technology.
As the industry continues to mature, it is likely to serve as a bridge between traditional finance and the emerging digital asset ecosystem, promoting the broader adoption of on-chain financial services.
Reference:
Visa Direct Taps Stablecoins to Unlock Faster Funding for Businesses
The State of Crypto Lending and Borrowing | Galaxy Research
Stablecoins Beyond Payments: The Onchain Lending Opportunity (in partnership with Visa)
