DeFi shifts from lenders to borrowers

DeFi’s lending market is being rebuilt around borrowers: how they price loans, how long they want them, and how orders get matched. (coinbase.com) (prestolabs.io) In the first wave of DeFi, most protocols pooled deposits, set variable rates by utilization, and let lenders earn whatever borrowers paid after fees. Coinbase said total value locked in DeFi lending reached an all-time high of $55 billion in December 2024. (coinbase.com) That structure still works, but it favors passive liquidity: lenders deposit first, and borrowers take the terms the pool offers. Coinbase said stablecoin borrow rates also act as a signal for leverage demand across crypto markets. (coinbase.com) Newer designs are trying to reverse that logic. Presto Research pointed to fixed-rate lending, rate trading, and auction-based credit as ways to improve price discovery and reduce dependence on short-term token incentives. (prestolabs.io) That means the key question is shifting from “how do we attract deposits” to “what loan terms will make borrowers show up.” In DeFi, lender yield is still funded by economic activity, and borrowing fees remain the main organic source of that yield. (prestolabs.io) Orderbooks are part of that shift. Euclid says its orderbook stack lets traders place explicit bids and asks, with price-time priority, partial fills, cancellations, and state commitments posted onchain every two blocks. (docs.euclidprotocol.io) That is different from the automated market maker model that dominated early DeFi trading, where prices come from a pool curve instead of a list of standing orders. Euclid says its design keeps matching fast while posting proofs to an onchain settlement layer. (docs.euclidprotocol.io) The borrower-first push is also colliding with governance questions. A Bank of Canada paper published in April 2026, using Aave V3 transaction data, found protocol earnings are concentrated in a few tokens and that many users use recursive leverage despite overcollateralization rules. (banqueducanada.ca) And the industry’s decentralization claims are under renewed pressure after emergency interventions. In April 2026, Arbitrum’s Security Council froze 30,765 ETH linked to the KelpDAO exploit, and Aave-backed service providers later asked the Arbitrum DAO to release the funds into a recovery vehicle. (coinmarketcap.com) (financefeeds.com) U.S. regulators and central banks have been warning about that tension for years. The Commodity Futures Trading Commission’s DeFi subcommittee said policymakers need to examine DeFi’s “dimensions of decentralization,” while the Bank for International Settlements argued that DeFi can create a decentralization illusion. (cftc.gov) (bis.org) So the market is moving on two tracks at once: more precise tools for borrowers, and more scrutiny of who controls the system when something breaks. The next phase of DeFi lending looks less like a passive yield farm and more like a credit market that has to prove both demand and governance. (coinbase.com) (prestolabs.io)