If DeFi lenders are accepting 3% yields when the risk-adjusted rate should be closer to 12%, why hasn’t demand pushed rates higher?

Dan Robinson of Paradigm raised the question. Tom Dunleavy and Adrian Cachinero Vasiljevic work through the answer: convenience yield for onchain-native holders, censorship resistance, tax friction on offboarding, and the simple fact that DeFi’s total liquidity is still a fraction of what traditional fixed income trades daily.

Tom’s counterpoint: the rates we see in DeFi today are not battle-tested. And when institutional capital finally arrives demanding proper risk compensation, the rates should move materially higher.

Adrian adds a wrinkle: for isolated, overcollateralized Bitcoin lending, DeFi may actually be more liquid than US Treasuries, not less, which could justify a rate closer to SOFR than anyone in the debate wants to admit.

Guests:

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This clip is from a longer conversation on whether DeFi lending yields adequately compensate depositors for tail risk. Full episode here: https://youtube.com/live/VOR1TNyh_vQ

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