From Aave to Ether.fi: Who captures the most value in on-chain credit systems?

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Author | @SilvioBusonero

Translation | Odaily Planet Daily (@OdailyChina)

Translator | Dingdang (@XiaMiPP)

As the market share of vaults and curators in the DeFi world continues to grow, the market begins to question: Are lending protocols being squeezed for profit margins? Is lending no longer a good business?

But if we shift our perspective back to the entire on-chain credit value chain, the conclusion is quite the opposite. Lending protocols still hold the most solid moat in this value chain. We can quantify this with data.

On Aave and SparkLend, the interest paid by vaults to lending protocols actually exceeds the income generated by the vaults themselves. This fact directly challenges the mainstream narrative of “distribution is king.”

At least in the lending field, distribution is not king.

Simply put: Aave not only earns more than the various vaults built on top of it, but even surpasses the asset issuers used for lending, such as Lido and Ether.fi.

To understand why, we need to dissect the complete value chain of DeFi lending and, following the flow of capital and fees, reassess the value capture capabilities of each role.

Lending Value Chain Breakdown

The annualized revenue scale of the entire lending market has exceeded $100 million. This value is not generated by a single link but by a complex stack comprising: the underlying blockchain settlement layer, asset issuers, lenders, the lending protocols themselves, and vaults responsible for distribution and strategy execution.

In previous articles, we mentioned that many current lending use cases stem from basis trading and liquidity mining opportunities, and we broke down the main strategic logic behind them.

So, who is truly “demanding” capital in the lending market?

I analyzed the top 50 wallet addresses on Aave and SparkLend and labeled the main borrowers.

The largest borrowers are various vaults and strategy platforms such as Fluid, Treehouse, Mellow, Ether.fi, Lido (also asset issuers). They hold the distribution capability towards end-users, helping users earn higher yields without managing complex cycles and risks themselves.

There are also large institutional fund providers, such as Abraxas Capital, deploying external capital into similar strategies, with economic models very close to vaults.

But vaults are not the whole story. At least the following participant categories are involved in this chain:

Users: deposit assets, seeking additional yield through vaults or strategy managers

Lending protocols: provide infrastructure and liquidity matching, charging interest to borrowers and taking a portion as protocol revenue

Lenders: capital providers, who can be ordinary users or other vaults

Asset issuers: most on-chain lending assets are backed by underlying assets, which generate income themselves, some of which is captured by issuers

Blockchain network: the underlying “track” where all activities occur

Lending protocols earn more than downstream vaults

Take Ether.fi’s ETH liquid staking vault as an example. It is the second-largest borrower on Aave, with an outstanding loan of about $1.5 billion. This strategy is very typical:

Deposit weETH (+2.9%)

Lend out wETH (–2%)

Vault charges a 0.5% platform management fee on TVL

Of Ether.fi’s total TVL, about $215 million is actual net liquidity deployed on Aave. This portion of TVL generates approximately $1.07 million annually in platform fee income for the vault.

Meanwhile, this strategy pays about $4.5 million in annual interest to Aave (calculated as: $1.5 billion borrowed × 2% borrowing APY × 15% reserve factor).

Even in one of the largest and most successful cycle strategies in DeFi, the value captured by the lending protocol is still several times that of the vault.

Of course, Ether.fi is also the issuer of weETH, which directly creates demand for weETH itself.

But even when combining the vault’s strategy revenue and the issuer’s revenue, the economic value created by the lending layer (Aave) remains higher.

In other words, the lending protocol is the part of the stack with the greatest value addition.

We can perform similar analyses on other common vaults:

Fluid Lite ETH: 20% performance fee + 0.05% exit fee, no platform management fee. Borrowed $1.7 billion wETH from Aave, paying about $33 million in interest, of which about $5 million goes to Aave, with Fluid’s own income close to $4 million.

Mellow Protocol’s strETH charges a 10% performance fee, with a borrowing scale of $165 million and a TVL of only about $37 million. Again, we see that in terms of TVL, Aave captures more value than the vault itself.

Let’s look at another example: SparkLend, the second-largest lending protocol on Ethereum. Treehouse is one of the key participants, running ETH cycle strategies:

TVL about $34 million

Borrowed $133 million

Charges performance fee only on marginal yields above 2.6%

As a lending protocol, SparkLend’s ability to capture value in terms of TVL surpasses that of vaults.

The pricing structure of vaults greatly impacts their own capture of value; but for lending protocols, their income depends more on the nominal scale of borrowing, which is relatively stable.

Even when shifting to dollar-denominated strategies, although leverage is lower, higher interest rates often offset this effect. I do not believe the conclusion will fundamentally change.

In relatively closed markets, more value may flow to curators, such as Stakehouse Prime Vault (26% performance fee, incentivized by Morpho). But this is not the final state of Morpho’s pricing mechanism; curators themselves are also engaging in distribution collaborations with other platforms.

Lending Protocols vs Asset Issuers

So the question is: is it better to do Aave or Lido?

This question is more complex than comparing vaults, because staked assets not only generate yields themselves but also indirectly create stablecoin interest income for protocols through the lending market. We can only estimate roughly.

Lido has about $4.42 billion in assets in the core Ethereum market, supporting lending positions, with annualized performance fee income of about $11 million.

These positions roughly support ETH and stablecoin lending in proportion. With the current net interest margin (NIM) of about 0.4%, the corresponding lending income is about $17 million, which is already significantly higher than Lido’s direct revenue (and this is at a historically low NIM level).

The True Moat of Lending Protocols

If we compare only with traditional financial deposit profit models, DeFi lending protocols might seem like a low-profit industry. But this comparison overlooks where the real moat lies.

In the on-chain credit system, the value captured by lending protocols exceeds that of downstream distribution layers and, overall, surpasses that of upstream asset issuers.

Individually, lending may seem like a thin-margin business; but within the complete credit stack, it is the layer with the strongest value capture relative to all other participants—vaults, issuers, distribution channels.