Founders of Aave and Ethena indicate that cryptocurrency finance is increasingly adopting conventional practices.

Until recently, cryptocurrency users primarily engaged in token trading or borrowed against their assets, frequently pursuing high but erratic yields. New instruments enable them to secure returns, even within a market characterized by significant fluctuations.

Aave Labs founder Stani Kulechov and Ethena founder + CEO Guy Young (Margaux Nijkerk/ CoinDesk)

What to know:

• The cryptocurrency landscape is transitioning from mere trading to more stable, predictable return offerings akin to bonds, as new instruments enable users to secure or manage yield amid market volatility, according to the leaders of Aave and Ethena.
• Although DeFi yields continue to be significantly influenced by trading activity and leverage, Stani Kulechov and Guy Young indicated that returns will increasingly derive from traditional finance assets being integrated onto the blockchain.

The financial aspects of cryptocurrency are just beginning to offer an atmosphere comparable to that of traditional finance: opportunities for earning steadier, more reliable returns—similar to bonds or savings products, as noted by Aave Labs founder Stani Kulechov and Ethena CEO Guy Young.

“Most fixed income resembles the distribution of risk in various formats … essentially just partitioning and reallocating risk,” Young remarked during a panel at the Digital Asset Summit (DAS) in New York. “This segment of DeFi was probably the least highlighted two years ago.”

Previously, cryptocurrency users largely focused on token trading or borrowing against their assets, frequently pursuing high and unstable yields. Recent tools now enable the locking in of returns, even in a market recognized for its substantial fluctuations.

“What you’re doing with Pendle is facilitating a fixed-to-floating rate swap,” Young explained, referring to a system that allows users to select between more stable or more variable returns—similar to choosing between fixed or adjustable interest rates.

This is a complex endeavor in crypto. “It’s quite challenging to predict what the market will look like three months ahead,” he noted.

Kulechov mentioned that Aave has played a role in this transition by supplying significant pools of capital that other projects can utilize. “Aave is effectively functioning as a liquidity reservoir,” he stated, aiding in the “bootstrap of many new products emerging in DeFi.”

Currently, a substantial portion of the profit being generated still hinges on trading rather than traditional lending. “Much of the DeFi yield … continues to be primarily reliant on … leverage,” Kulechov remarked.

Over time, this may evolve as more real-world assets are integrated onto the blockchain, a process referred to as tokenization.

“A significant portion of the yields and the economic dynamics will originate from traditional finance,” he added.

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