As markets mature, yield-bearing assets are starting to behave less like products to hold and more like collateral systems to build on.
BERMUDA – xx January 2025 – DeFi’s early yield economy was largely manufactured. Returns were often driven by incentives, emissions, or volatility, and capital rotated rapidly between opportunities without durable stickiness. Many of the era’s most influential primitives, from early yield aggregators to algorithmic systems and later restaking and yield-bearing stablecoins, reflected the same underlying dynamic: leverage amplified upside, but also magnified fragility, and products regularly broke under scale or stress.
As DeFi evolves, yield can no longer be evaluated purely by headline return. The defining question is whether that yield can withstand real utilization at scale. Can an asset be posted as collateral, borrowed against, redeployed across protocols, and unwound efficiently without destabilizing the surrounding system? That is the practical test of whether an asset’s yield is sustainable and whether it can serve as market infrastructure rather than a transient trade.
This is where yield-bearing real-world assets (RWAs) represent a meaningful step change. Unlike emission-driven products, their yield does not inherently decay as adoption increases. Unlike volatile crypto-native assets, their price behavior can be anchored to real-world economics rather than reflexive market dynamics. Most importantly, their returns are generated independently of onchain leverage itself.
This distinction is subtle but critical. Assets that generate yield primarily because they are levered tend to compress or fail as leverage scales. Assets that generate yield before they are levered can support reuse more safely because leverage becomes an overlay rather than the source of returns.
OnRe’s longstanding view has been that once yield-bearing RWAs reached sufficient transparency, liquidity depth, and composability, they would evolve naturally from assets that are held into assets that are built on. In 2025, that transition began to take shape in observable market behavior around ONyc, as utilization shifted from passive ownership toward active deployment across the DeFi stack.
From Yield to Capital: What Changed Onchain
ONyc’s role onchain is increasingly defined by reuse. Rather than sitting idle in wallets, it is being deployed across lending markets, looping strategies, structured vaults, and liquid secondary venues, where it functions as collateral and financing infrastructure for broader onchain activity.
“The market is increasingly judging yield-bearing assets by how they behave when they’re used at scale,” said Ayyan Rahman, Co-Founder and CGO at OnRe. “The signal is sustained utilization: collateral deposits, borrowing demand, and sufficient liquidity across different market conditions.”
The significance of this shift is less about any single integration and more about what it reveals. The market is beginning to treat predictable, yield-bearing assets as working capital rather than passive savings instruments. That is what developed markets do. Reliable yield is not only held, it is incorporated into collateral and financing structures that support broader activity.
This behavior is particularly meaningful when it emerges without heavy reliance on incentives. When an asset is adopted as collateral because it is useful, rather than because it is subsidized, it begins to show early signs of collateral-grade behavior.
Taken together, these dynamics point to a broader change in what will matter most in DeFi’s next phase. The market will be shaped less by which assets offer the highest yield and more by which assets remain usable across the full lifecycle of onchain activity, including borrowing, secondary liquidity, and orderly unwinds.
This transition also changes how an asset scales. Yield products that are held passively tend to grow linearly with deposits. Assets that can be reused as collateral can support compounding activity across protocols because the same unit of capital can be borrowed against, redeployed, and actively managed across multiple venues. That shift, from yield as a product to yield as capital infrastructure, is one of the clearest signals of DeFi’s evolution.
The Looping Thesis: When Yield Becomes Balance Sheet
As markets mature, capital behavior changes. In traditional finance, the end state of reliable yield instruments is balance sheet integration, where assets are used not only for return, but as collateral, financing tools, and liquidity instruments. In DeFi, that shift is reflected most clearly through looping.
Looping is not inherently speculative. It is the rational response of sophisticated capital to assets that combine predictable returns, stable price behavior, and reliable liquidity. When those conditions are met, reuse becomes logical rather than forced, and the asset begins to function as capital infrastructure rather than a passive holding.
Most assets never reach this point, for reasons that are familiar across market cycles. High-volatility tokens typically face conservative collateral parameters that constrain leverage. Emission-driven yield compresses as leverage scales and incentives normalize. Illiquid assets fail when exits become disorderly precisely at the moment leveraged positions need to unwind. In each case, the system breaks for the same reason: either the yield is too dependent on the leverage loop itself, or the market cannot support orderly exits.
Yield-bearing RWAs can behave differently when they are structured correctly. Their yield is generated through underlying economic activity and reserve assets rather than token incentives. Their price behavior can remain anchored to NAV rather than momentum. Their risk profile can be modeled using familiar financial frameworks rather than purely heuristic collateral models.
“ONyc is successful if it can prove long term these two concepts: the best asset to invest into during bear markets for reliable returns. Second, the best collateral to hold and deploy against in bullish market conditions.”
When those attributes hold, utilization can rise without collapsing yield, and leverage can scale without degrading market function. This is not a claim of permanence. In reinsurance and finance more broadly, true validation comes only through time, stress, and scale. What it does suggest, however, is that yield-bearing RWAs can begin to function as credible collateral instruments in DeFi, not only as yield products.
Liquidity as a Core Risk Primitive
A foundational lesson of DeFi is that leverage without liquidity is a liability. In traditional markets, the concept of liquidity for most private equity based models is unheard of. So how do we balance the two?
“The challenge most RWAs have failed to address is secondary market liquidity. This is because DeFi markets and utilization is seen as an afterthought to AUM, as opposed to a core primitive for growth. The RWAs which will be here for years to come make secondary liquidity a key part of their risk model, as opposed to it being a feature.”
Lending markets can originate positions efficiently, but exits and unwinds always happen somewhere else. If secondary liquidity is thin or unreliable, leverage becomes unstable precisely when markets need to unwind most.
For collateral-grade assets, secondary liquidity has to be treated as part of the risk model rather than an optional feature. It is not enough to assume liquidity will appear once an asset reaches scale. It has to be designed for and maintained through different market conditions.
From inception, OnRe treated liquidity as a core input. ONyc’s design includes dedicated liquidity considerations intended to support orderly entry, exit, and unwind paths under stress. In practice, this approach prioritizes market function and ensures leverage remains supportable as adoption grows.
This is not a unique lesson. It is simply capital management applied to DeFi. But it is one the market continues to relearn across cycles: liquidity is not optional in collateral systems.
Transparency as the Foundation for Composability
A second requirement for collateral-grade assets is transparency. Market participants can only integrate an asset deeply when they can model its risk and understand the underlying economics.
OnRe made an early decision to expose not only headline yield metrics, but also key inputs around reserves, NAV performance, and portfolio structure. This enables protocols, curators, and allocators to assess drawdowns, model risk, and evaluate how underlying performance translates into onchain returns.
As this market matures, transparency increasingly means third-party verification, not just self-reported metrics. OnRe is expanding independent verification with institutional attestations of NAV and reserve assets through Apex, alongside DeFi-native verification of its assets and operations through Accountable.
In DeFi, opacity limits composability. Transparency enables responsible integration because it makes an asset legible to both human decision-makers and protocol-level risk systems. Over time, that is what separates assets that can be integrated into lending and structured markets from those that remain isolated yield trades. Market structure follows legibility.
What This Signals About DeFi’s Next Phase
The broader takeaway is that DeFi is shifting its center of gravity.
The assets that matter most in the next phase will not be the most volatile or the most heavily incentivized. They will be the assets that remain predictable under stress, retain liquidity under pressure, and function effectively as reusable collateral. This is a defining attribute of mature financial systems: capital flows toward assets that can be used broadly, not just held.
Yield-bearing assets are evolving from instruments that are held into instruments that are built on. The protocols that define the next era will be the ones that recognize this shift and design accordingly, prioritizing collateral behavior, transparent risk, and liquidity that holds up under unwind conditions.
The next question is whether this shift holds through stress and scale. The strongest signal will not be short-term TVL growth, but sustained collateral adoption across multiple venues, liquidity that remains reliable during unwind conditions, and transparency that supports credible risk modeling. If those inputs persist, yield-bearing assets will increasingly be evaluated not as returns products, but as market infrastructure.
OnRe’s focus is to keep raising the bar on asset quality, liquidity depth, and composability, while ensuring risk remains transparent and behavior remains predictable. That is how confidence is built, not only in ONyc, but in the broader view that real-world yield belongs onchain.
DeFi does not need more yield. It needs better assets.
About OnRe
On Re SAC Ltd. is a fully licensed, collateralized reinsurer and onchain asset manager connecting $250B of alternative capital with the $800B global P&C reinsurance market. Beyond bringing additional capacity to the industry, OnRe gives investors access to a diversified portfolio through ONyc, a tokenized reinsurance vehicle built for resilient performance across market cycles. Through rigorous capital modeling and 24/7 ONyc liquidity, OnRe sets a new standard for reinsurance capital formation.
Media Contact
Sarah George
Head of Operations, OnRe
sarah@onre.finance
