Stablecoins have evolved from crypto trading tools to foundational infrastructure powering a new lending space that has grown rapidly in the past year, processing over half a trillion in loans to date.
This paper examines how stablecoins, when connected to smart contract-based lending protocols, can modernize the global lending ecosystem — making it more transparent, efficient and accessible. For banks and financial institutions, this represents both an opportunity and an imperative to understand how programmable money is reshaping credit markets.
Key Statistic: $670B in stablecoin-denominated loans originated over the last five years
"The real revolution is not in electronic money; it is in electronic trust." – Dee Hock, Founder of Visa
Onchain lending reimagines financial services by using smart contracts to automate and facilitate intermediation instead of traditional institutions. When combined with stablecoins, these protocols enable new ways to lend and borrow with automated execution, near-instantaneous settlement and borderless capital flows — essentially creating a global credit market that never closes.
Three key benefits:
First, onchain lending helps ensure capital market efficiency. Smart contracts continuously monitor collateral values and adjust interest rates algorithmically based on supply and demand — when utilization is low, rates decrease; when liquidity tightens, rates increase.
Second, it can create accessible credit markets available 24/7. These global markets never close, run automatically and offer transparent pricing visible to all participants. Anyone with internet access can lend or borrow without permission from a central authority.
Third, stablecoins provide the dependable backbone. They offer fiat currency-denominated stability that lenders and borrowers can both utilize, combined with the flexibility and efficiency of programmable money.
How it works:
Lenders deposit stablecoins (such as USDC or USDT) into smart contract-managed lending pools, typically earning interest on their deposits. Borrowers access these funds by posting collateral (typically crypto assets or tokenized real-world assets) that become locked in the smart contract. Smart contracts automate traditional loan servicing, including interest rate calculations, real-time monitoring of collateral values, liquidation if collateral falls below required thresholds, and distribution of earnings to lenders.
Onchain lending fundamentally shifts how risk is managed. Traditional lending typically assesses counterparty risk through credit checks and legal agreements. Onchain lending can reduce this specific risk through automated liquidation — the protocol doesn't need to trust the borrower's willingness to repay, but trusts the smart contract's code to enforce loan terms instead.
This does not eliminate risk but transforms it. Counterparty risk can be managed through smart contracts. Other risks include the technology itself. Instead of analyzing balance sheets, liquidity providers must analyze protocol security audits, governance structures and data source reliability.
Market Overview (August 2025):
Historical data:
In August 2025, $51.7 billion in stablecoins were borrowed, bringing the total stablecoin lending volume since January 2020 to over $670 billion. Stablecoin lending activity declined significantly from 2022 through early 2024, primarily due to turmoil from the collapse of Terra Luna, FTX and several centralized crypto lenders. However, in late 2024, stablecoin lending began recovering, reaching new highs over recent months.
This recovery is also seen in the number of loans and unique borrowers, which in August 2025 were 427K loans and 81K borrowing addresses, respectively.
During the previous cycle, most lending occurred on Ethereum, Avalanche, BSC and Polygon blockchains. Since then, Ethereum and Polygon have remained dominant with 85% combined share in August 2025, while Base, Arbitrum and Solana have gained share, reaching 11% combined during the same period.
Regarding onchain lending protocols, Aave and Compound accounted for 89% of volume in August 2025 (and have historically been the dominant protocols), while Morpho has gained new share, reaching 4% after launching Morpho V1 in early 2024 and V2 in June 2025.
USDC and USDT constitute the vast majority of stablecoin lending, representing over 99% of historical volume. This is unsurprising given that USDC and USDT account for over 98% of the current stablecoin supply across the stablecoins analyzed.
Average loan size also declined during the lull after the previous cycle but has since recovered to $121,000 in August 2025, reflecting potential additional lending demand from institutional players.
Active loan balances and the supply of stablecoins in lending protocols have also recovered to reach all-time highs compared to the previous cycle. August 2025 saw an average of $17.5 billion in stablecoins maintained in lending protocols, with $14.8 billion (84%) actively utilized in loans.
Average stablecoin lending rates fluctuate due to volatility in onchain market conditions impacting non-stablecoin collateral assets (such as ETH and BTC), with borrower APRs ranging from under 2% to over 16%. The average rates in August 2025 were 6.4% APR to borrow and 5.1% APY to lend. These rates align closely with broader historical averages — average rates for the last 12 months were 6.7% APR to borrow and 5.0% APY to lend, while historical average rates sit at 6.4% APR to borrow and 4.8% to lend. These averages suggest that with higher-quality collateral, onchain interest rates can be within a few percentage points of traditional market lending rates.
Morpho is a lending protocol that aggregates demand and liquidity across other platforms. Morpho integrates as the backend lending infrastructure for third-party platforms and wallets including Coinbase, BitPanda, Safe, Ledger and Trust Wallet, as well as banks like Société Générale. With Morpho under the hood, users on these platforms can tap into shared demand and liquidity.
Today, Morpho has $1.7 billion in monthly stablecoin lending volume with $1.9 billion in active stablecoin loans outstanding. USDC comprises $1.6 billion (90%) of stablecoin lending volume and $1.8 billion (91%) of active stablecoin loans.
By aggregating USDC liquidity across platforms, Morpho's USDC borrow APY on Ethereum can be as low as 4-5% — up to 2x lower than other crypto-backed loan options.
Morpho's partnership with Coinbase is a major driver of this USDC activity. The Coinbase integration has driven over $1 billion in USDC loan originations backed by $1.2 billion+ in cbBTC collateral on Morpho.
For the exchanges, wallets and fintechs partnering with Morpho, the protocol can also drive user retention. In-app financial services give users fewer reasons to move their assets elsewhere and enable users to borrow instead of selling assets. Since Morpho's markets run autonomously onchain with full transparency for loans and collateral, participants can gain better trust and information to manage market and counterparty risk.
Credit Coop is a structured finance protocol that enables borrowing and lending against onchain cash flows. Credit Coop smart contracts allow lenders to automatically receive a split of revenue from borrowers' revenue-generating smart contracts. This provides recourse in the event of a default by automatically redirecting 100% of cash flows from the revenue contracts.
Rain, a stablecoin-linked card issuer and Visa partner, leverages Credit Coop to access liquidity using their cardholders' payment receivables as collateral to secure credit. As a credit card issuer, Rain must settle with Visa daily for cardholder purchases, while repayments from users are collected later in the month. Credit Coop's Spigot technology creates a programmable lockbox over these user repayment flows, allowing Rain to borrow against future receivables without additional collateral, solving their working capital timing challenge. To date, Rain has borrowed or repaid over $175 million in USDC via Credit Coop, with this activity accelerating as Rain's adoption grows.
On the acquirer side, Coinflow, a crypto-native payment processor, also uses Credit Coop to finance instant disbursements for merchants in USDC while card payments are settling.
Overall activity on Credit Coop has grown significantly over recent months, with lending volume exceeding $30 million and active loans surpassing $8.8 million in August 2025.
For lenders, Credit Coop offers higher yields at 12-15% APY with full onchain transparency into loan performance and trustless recourse from programmatic control of revenue-generating smart contracts. Credit Coop also natively integrates with onramps, allowing institutions to more easily start lending and access onchain yields via wire transfers.
Repayment volume on Credit Coop closely correlates with lending volume (over $29 million in August 2025), as Credit Coop continuously collects and disburses repayments to lenders from borrowers' revenue streams.
Huma Finance is a payment financing platform using blockchain and stablecoins, designed for compliant cross-border payments financing, stablecoin-linked card financing, trade finance and other financing solutions.
Huma's PayFi network allows businesses to access revolving credit lines, receivable-backed credit lines and receivable factoring credit in stablecoins. Today, approved businesses use Huma largely to accelerate cross-border payments and supplier payouts, allowing recipients to receive immediate funds in stablecoins. This eliminates the need for pre-funding, capital lockups and related costs and delays.
Businesses pay a daily fee (typically 6-10 basis points) while maintaining an open loan balance. Since capital is repaid quickly (typically 1-5 days), the same capital is frequently recycled. As a result, lenders on Huma can access yields of 10% or more APY.
Activity on Huma has grown steadily with major acceleration from late 2024 onward. Monthly transaction volume now reaches approximately $500 million, split roughly evenly between loan originations and repayments. Active liquidity has grown to reach $140 million, with $98 million in PayFi assets being used in active loans. Much of this activity relates to cross-border payment financing.
The intersection of stablecoins and onchain lending creates three future opportunities that we expect will reshape traditional finance over the next decade.
Real-world asset (RWA) tokenization is creating opportunities for onchain lending collateral. The market has grown from $5 billion in December 2023 to $12.7 billion today, with McKinsey projecting total tokenized assets could reach $1-4 trillion by 2030.
BlackRock's BUIDL Fund exemplifies institutional adoption, reaching an all-time high market cap of $2.9 billion in tokenized Treasury holdings in May 2025, with multiple onchain lending protocols participating as yield distribution partners. Franklin Templeton's OnChain U.S. Government Money Fund (BENJI) adds another $800 million in tokenized government securities, while MakerDAO now derives nearly 30% of its $6.6 billion balance sheet from real-world assets.
Traditional assets like corporate bonds, private credit and real estate may soon serve as collateral in 24/7 global lending markets. This can bridge the $40+ trillion traditional credit market with the efficiency and transparency of programmable money, creating new liquidity sources for traditional assets.
Major asset managers are already piloting scalable implementations, with the potential to tokenize hundreds of trillions in addressable traditional assets over the coming decade.
Credit card programs could soon be expanded to include crypto collateral, opening new market opportunities. Early movers like ether.fi are launching non-custodial credit cards that allow users to access liquidity by borrowing against their crypto holdings while maintaining asset ownership, avoiding capital gains taxes while maintaining upside exposure. Real-time collateral monitoring through smart contracts enables automated margin calls and risk management.
Banks and private credit funds could serve as liquidity providers to these programs, offering institutional capital through programmable lending protocols rather than traditional credit facilities. This creates new yield opportunities for institutional investors while reducing counterparty risk through transparent, automated collateral management.
One of the most transformative opportunities on the horizon is in undercollateralized lending based on onchain behavior and digital identity.
The current overcollateralization model, while secure, is capital-intensive and limits the market to borrowers who already possess significant assets. The next wave of innovation focuses on solving this challenge through the development of onchain identity and credit scoring systems. These emerging solutions analyze a wallet's transaction history, asset holdings and interactions with other protocols to construct a credit profile, all while preserving user privacy through techniques like zero-knowledge proofs.
Platforms like 3Jane, Providence and Credora are pioneering methods to assess creditworthiness based on verifiable onchain behavior. This can eventually enable protocols to offer undercollateralized and unsecured loans based on reputation and credit history, potentially unlocking a new addressable market and bringing the full spectrum of traditional credit products into this efficient onchain architecture.
As onchain finance evolves to serve more traditional financial use cases, Visa is committed to helping our partners navigate this transformation and seize the opportunities it presents.
To see live data and gain more insights, visit the Visa Onchain Analytics Dashboard. This free tool tracks real-time stablecoin movements across 17 major blockchains to highlight trends related to supply, transaction volume and address activity.
If your organization wants help developing an onchain finance strategy, contact a Visa Crypto Representative to learn about Visa Crypto Solutions and explore new offerings. Our experts help banks and financial institutions navigate the stablecoin landscape with strategic guidance across the entire lifecycle, from education to implementation.
Visa provides end-to-end consulting and implementation support, including:
The future of finance is programmable, transparent and always-on. Organizations that embrace this emerging financial infrastructure today will be well-positioned to lead the next generation of global markets tomorrow.