U.S. Treasuries Outpace Aave USDC Yields

The Federal Reserve raised its policy target range to 3.75%–4.00% on Sept. 16. The one‑year U.S. Treasury yield reached about 4.45% the same day. An analysis of on‑chain rates in 2026 by Coin Metrics found that Aave USDC lenders earned on average 31 basis points less than the one‑year Treasury and underperformed the Treasury rate in 78% of the intervals measured.

The one‑year Treasury provides a government‑backed return that market participants use as a benchmark when comparing dollar‑denominated yields. On‑chain credit conditions are tracked by a separate measure called CDOR, which follows overnight borrowing rates for USDC and USDT inside Aave V3.

Anthony DeMartino, co‑founder and CEO of Sentora, argued that CDOR moves independently of traditional dollar benchmarks. He said, “Correlation between SOFR and CDOR has been very low, so a Fed hike should not be expected to pull onchain rates materially higher, and SOFR is the wrong anchor for pricing onchain exposure.” Sentora helped construct the CDOR benchmark.

A working paper from the European Central Bank published Sept. 14 found that monetary policy transmission into DeFi stablecoin deposit rates is weak and unstable over short horizons. The paper noted that on‑chain rates can move opposite to central bank policy before they converge, and that deleveraging in crypto markets can reduce on‑chain borrowing demand and push CDOR down while Treasury yields rise.

Coin Metrics data show some on‑chain products still outperformed Treasuries during the study window. Morpho’s median USDC vault beat the one‑year Treasury by about 65 basis points on average, but its annualized yield volatility was roughly 3.3 times that of Aave’s USDC lending yields.

Market participants use different benchmarks to assess required compensation for crypto‑specific risks. Some participants estimate a plain stablecoin vault should clear the higher of the Treasury rate or CDOR plus 100–300 basis points. Curated or leveraged strategies have been framed as needing 300–600 basis points above the same floor, reflecting higher volatility and credit exposure.

Kraken’s xStocks Vaults provide an example of tokenized equity collateral deployed into DeFi strategies. Kraken advertises a net annualized return of about 2% for SPYx and QQQx and 1.8% for NVDAx after a 25% performance fee, with withdrawals taking three days or longer under stress. On a $10,000 SPYx position, a 2% vault return equals about $200 a year; a 2% loss in the vault strategy or a decline in the token price would erase that incremental return.

Scenarios for on‑chain yields vary. If borrowing demand, concentrated in Bitcoin‑related activity, stays strong, on‑chain utilization could push CDOR higher and lift DeFi yields independently of the Fed. If prolonged higher rates reduce risk appetite, borrowers may deleverage and stablecoin deposit rates could fall while Treasury yields remain elevated. In stressed market conditions, automated deleveraging and liquidity constraints can compress the yields that vault users actually receive.

The one‑year Treasury quantifies the low‑risk return an investor gives up by choosing crypto lending over government debt. CDOR measures native on‑chain borrowing costs. Both figures are used to assess whether an on‑chain yield compensates for smart‑contract, liquidity and credit risks; other measurable factors include yield volatility, protocol risk, liquidity and potential tail events.