Executive Summary

Onchain carry trades depend on stablecoin funding at rates that preserve an attractive spread for borrowers. In markets with established borrowing demand, we assess stablecoin supply to be the main constraint on further growth. Expanding this funding base requires understanding who supplies liquidity today and why. We analyzed $6.1 billion supplied to Morpho’s variable-rate stablecoin lending markets and identified $2.6 billion associated with three funding channels. This report examines their providers’ incentives, constraints, and capacity to supply additional capital.

• Lenders weigh yield against withdrawal liquidity and collateral recovery. Returns depend on borrowing rates and utilization, while immediate access to principal depends on available lending-market liquidity. For tokenized assets, lenders must assess transfer restrictions, redemption terms, and secondary-market liquidity, particularly under stress.
• The five largest curators oversee more than 80% of stablecoin supply. Steakhouse, Sentora, Gauntlet, SparkDAO, and RockawayX together account for $5.0 billion in Morpho’s variable-rate lending markets. Their allocation decisions and relationships with capital providers shape where liquidity is deployed, making them key channels for expanding stablecoin lending supply.
• Platform earn programs can attract exogenous capital. Coinbase Lend, Robinhood Earn, and Uniswap Earn account for $1.1 billion of identified supply. Further integrations could drive near-term growth by attracting balances not already deployed in onchain lending.
• Protocol balance sheets are key funding sources with limited near-term growth. Spark and Grove account for $1.1 billion of identified supply, supported by Sky-authorized credit facilities. Credit and risk limits, liquidity requirements, and competing uses of capital could constrain further allocations in the near term.
• Issuer reserve lending offers another avenue for funding growth. Issuers such as Ethena can allocate part of their backing portfolios to lending markets. These allocations must preserve sufficient liquidity for redemptions and other commitments, particularly during market stress.

For lending platforms and curators, these findings provide a framework for matching funding channels with financing opportunities. For asset managers and issuers, they clarify the product features and market infrastructure needed to attract a broader, more durable lender base.

Onchain Lending 101

In our previous report, we examined how investors post tokenized assets as collateral, borrow stablecoins, and reinvest the proceeds to increase their exposure and earn carry. We described this financing as onchain repo because it performs a similar economic function to traditional repo. This report turns to the lenders supplying the stablecoins that make this financing possible.

These lenders participate in markets that finance both crypto and tokenized assets. Aave pools lending supply to fund borrowing against a range of collateral assets. Morpho uses isolated markets, each pairing one loan asset with one collateral asset, with curator-managed vaults allocating lender deposits across selected markets. We examine stablecoin supply in Morpho’s variable-rate markets and trace the funding channels that could further grow onchain lending.

Lender economics

Owning an asset exposes an investor to its investment performance. Lending stablecoins against it earns borrower-paid interest, with excess collateral providing a cushion against losses. Eligibility requirements also differ: an investor unable to own a tokenized product directly may still be eligible to lend against it.

The interest earned on supplied stablecoins depends on the borrowing rate and utilization, the share of supplied funds that borrowers have drawn. Morpho’s standard variable-rate model targets 90% utilization. Borrowing rates rise sharply above that target and continue adjusting upward if elevated utilization persists, encouraging additional stablecoin supply and borrower repayments.

Lenders can request withdrawals at any time, but immediate access depends on available liquidity. The utilization target guides pricing incentives without guaranteeing an unborrowed buffer. Lenders therefore assess both the income offered and their ability to recover principal when needed.

Lender protections

When a borrowing position breaches its liquidation threshold, Morpho allows liquidators to repay debt in exchange for collateral at a discount to its oracle-based valuation. This mechanism protects lenders only to the extent that valuations are reliable and collateral can be converted into enough stablecoins to cover the debt.

For tokenized assets, reported net asset value may exceed the price available in an immediate sale. Issuer redemptions may also involve eligibility requirements, settlement delays, or withdrawal limits. If collateral recoveries are insufficient to repay the debt, lenders in the affected market bear the shortfall.

The November 2025 Stream Finance collapse illustrates how these protections can fail. After Stream disclosed a $93 million loss attributed to an external manager and suspended withdrawals, its xUSD token fell sharply in value. In affected markets where borrowers posted xUSD to borrow stablecoins, fixed-price oracles did not reflect the decline, so liquidations were not triggered and lenders were left with bad debt.

The supply constraint

In our assessment, stablecoin supply constrains further growth in markets with established borrowing demand. Approximately $5.5 billion of the $6.1 billion supplied to Morpho’s variable-rate stablecoin lending markets is already borrowed, placing aggregate utilization near 90%. In heavily utilized markets, additional borrowing demand without additional supply raises financing costs and limits further borrowing even when collateral is available.

Growing this market requires funding at rates that remain attractive to borrowers. The following sections examine who supplies that capital today, why they participate, and what determines their capacity and willingness to supply more.

Current Funding Landscape

Stablecoin supply in Morpho’s variable-rate lending markets totaled $6.1 billion as of October 28, 2026. We began tracing its sources through curator vaults, which allocate lender deposits across selected markets. The five largest curators, Steakhouse, Sentora, Gauntlet, SparkDAO, and RockawayX, together accounted for $5.0 billion, or 81% of the total. Exhibit 1 distinguishes total stablecoin supply from the $2.4 billion allocated to markets accepting tokenized collateral.

We focused our attribution on the five largest curators, using onchain positions and public disclosures to link vault deposits to platforms, protocols, and funding programs. Market-level allocations are estimates based on pro rata attribution of identified balances across lending exposures.

This mapping identifies approximately $2.6 billion across three funding channels, representing 42% of total stablecoin supply in Morpho markets.

• Platform earn programs. Customer balances supplied through platform earn products. Coinbase Lend, Robinhood Earn, and Uniswap Earn account for $1.1 billion of identified supply.
• Protocol balance sheets. Lending allocations supported by protocol funding and governed by credit mandates and risk limits. Sky extends credit to its designated allocators, Spark and Grove, which together account for $1.1 billion of identified supply.
• Issuer reserve lending. Backing assets that issuers supply to lending markets to generate portfolio income. Identified allocations from Ethena’s USDe backing portfolio account for $360 million.

The remaining $3.6 billion is grouped as miscellaneous supply. This category includes business treasuries, institutional mandates, managed investment pools, smaller sources not shown separately, and deposits whose funding sources could not be established.

Platform Earn Programs

Crypto exchanges, brokerage apps, and DeFi applications are embedding access to lending markets within their existing interfaces. Customers supply the capital through earn products that connect to curator-managed vaults. These products broaden each platform’s service offering and encourage customers to retain balances on it.

Coinbase Lend

Coinbase launched USDC lending in September 2025. Eligible customers supply USDC through the Coinbase app, using an embedded self-custodial wallet to deposit into Steakhouse-curated Morpho vaults on Base. The Core (Prime) offering lends mainly against BTC- and ETH-linked collateral. The High Yield offering, introduced in June 2026, finances a broader collateral set, including Ethena’s USDe and Midas-Fasanara’s mGLO. Morpho reported that Coinbase’s lending products exceeded $500 million in deposits in September 2026, and that High Yield attracted more than $280 million in its first two months.

Robinhood Earn

Robinhood launched Earn in July 2026 alongside Robinhood Chain. Eligible customers can purchase Paxos-issued USDG using available buying power, then supply it through an embedded self-custodial wallet to a Steakhouse-curated Morpho vault on Robinhood Chain. The vault lends against collateral including Ethena’s USDe and Maple’s syrupUSDG. Morpho reported that Robinhood Earn exceeded $500 million in deposits in September 2026. The program connects brokerage buying power to lending markets through an in-app workflow, giving customers access without requiring them to navigate a separate DeFi application.

Uniswap Earn

Uniswap launched Earn in July 2026, allowing users to supply USDC, USDT, or ETH through its web app and wallet. Deposits enter dedicated Morpho vaults on Ethereum, curated by Gauntlet under its Prime mandate, which focuses on overcollateralized lending against blue-chip crypto assets. Users swapping into supported assets can supply them directly into Earn as part of the transaction.

Constraints and Opportunities

These programs generally allow customers to request withdrawals without a fixed lock-up, but immediate access depends on available vault and lending-market liquidity. Curators must balance capital deployment against potential withdrawals, including when customers seek funds for trading or spending during market stress.

Further integrations are extending lending markets to additional customers. Kraken’s USDC DeFi Earn uses Veda vaults, with Sentora allocating across venues including Aave and Morpho. Binance Wallet provides access to RockawayX’s RWA USDC pool on Kamino. Their contribution to aggregate lending supply depends on attracting net new balances, as transfers between venues simply change where capital is supplied without increasing the total.

Protocol Balance Sheets

Banks rely on asset-liability management to coordinate funding, investment returns, and liquidity. Sky faces a similar task: managing the assets backing its dollar stablecoins while maintaining liquidity and generating income to fund returns to savers. Sky evolved from MakerDAO’s collateralized lending system, in which users borrowed newly issued DAI against crypto assets. In 2024 the ecosystem introduced USDS, which converts one-for-one with DAI. USDS holders can deposit into the Sky Savings Rate module and receive sUSDS, which accrues a variable, governance-set return funded from aggregate protocol surplus.

Spark and Grove are separately governed capital allocators operating within Sky’s credit and risk framework. They draw newly issued USDS through Sky-authorized facilities, pay Sky a base rate, and seek to earn a spread over their financing costs. Borrowing ceilings, risk-capital requirements, and exposure limits constrain how much each allocator can draw and where it can deploy it.

Spark

Spark launched in May 2023 with SparkLend, a market for borrowing against crypto collateral. It has since expanded into a broader capital allocator through the Spark Liquidity Layer, supplying funding to SparkLend and to external venues, including Morpho and Aave. Spark also maintains liquid assets, including tokenized Treasury funds and undeployed USDS, to support liquidity needs across its allocations.In addition to Sky credit, Spark attracts third-party deposits through Spark Savings vaults, whose returns are generated through Liquidity Layer strategies. Our analysis groups Spark’s Morpho positions into one funding channel without separating the contributions of Sky credit and third-party deposits.

Grove

Grove launched in June 2025 with an institutional investment mandate spanning tokenized Treasury and credit funds. Its initial $1 billion allocation to the Janus Henderson Anemoy AAA CLO strategy illustrates the scale of its direct investments. Grove also provides liquidity through Basin, which makes stablecoins available for approved tokenized-asset sales, redemptions, and transfers while settlement is completed.Alongside these activities, Grove supplies stablecoins to lending markets through vehicles including Steakhouse-curated Morpho vaults. These positions finance collateralized borrowing and are the portion of Grove’s portfolio captured in our funding analysis.

Constraints and Opportunities

Spark’s and Grove’s allocations to lending markets are subject to Sky’s borrowing ceilings, allocation limits, and requirements for loss-absorbing capital. Near-term growth can come from deploying idle funds, drawing additional credit within authorized limits, or reallocating capital from other strategies. These decisions must account for liquidity requirements and competing uses of capital.

Lending can grow further within existing borrowing ceilings. Expanding borrowing beyond those ceilings requires governance approval and sufficient risk capital.

Issuer Reserve Lending

Issuer reserve lending draws on portfolios managed to back issued tokens and support redemptions. Assets received at issuance remain under management while the tokens are outstanding, allowing the backing portfolio to earn income. If their mandates permit, issuers can supply part of their stablecoin holdings to lending markets, converting cash into lending positions. These allocations are subject to risk limits and the liquidity needed for redemptions and other commitments.

Ethena

Ethena’s USDe targets a value of $1 and is designed to be fully backed. Its original strategy paired crypto holdings with offsetting short futures positions, limiting directional price exposure while generating income from staking rewards, funding payments, and basis spreads. When funding rates compress, Ethena can shift more backing toward lending and other investments.

Ethena supplies stablecoins from its backing portfolio to lending markets across Aave, Morpho, Jupiter Lend, and Kamino. Our mapping attributes approximately $360 million of Morpho stablecoin supply to Ethena and identifies it as the largest depositor in Sentora’s RLUSD Main and PayPal USD Main vaults.

Constraints and Opportunities

Reserve managers must balance lending income against token redemptions and other portfolio commitments. Recovering stablecoins from lending positions depends on available market liquidity or contractual repayment terms. Issuers must therefore size lending allocations and retain sufficient liquid assets to meet outflows, including when redemption demand rises as lending-market liquidity tightens.

This funding source can grow through net token issuance, larger lending allocations within existing backing portfolios, and participation by additional issuers. A broader range of tokenized collateral suitable for borrowing and deeper market liquidity could support larger allocations.

Conclusion

The next phase of growth in onchain lending requires a broader funding base at rates borrowers can sustain. Protocol balance sheets and issuer reserves will remain important sources, with expansion shaped by credit capacity, token issuance, portfolio allocation, and liquidity needs. Platform earn programs offer a promising near-term route to additional capital. Their adoption demonstrates how familiar financial platforms can broaden participation in lending markets, and further integrations could attract customer balances not already deployed in those markets.

The longer-term opportunity is to build funding structures suited to institutional investors. In traditional repo markets, money market funds illustrate how managed pools aggregate investor cash to finance collateralized borrowing. Onchain lending pools and institutional mandates could perform a comparable funding role, with terms adapted to their collateral, liquidity, and liquidation mechanics.

Institutional credit facilities linked to onchain lending mandates offer another avenue to explore. Developing these arrangements, however, would require traditional lenders and onchain participants to agree on how capital is deployed, losses are borne, and principal is recovered. Progress would also depend on clarity about the regulatory requirements applicable to vaults and onchain lending arrangements.

RWA.xyz will support this work through research and analysis that help traditional and onchain capital market participants evaluate funding opportunities and requirements. We welcome conversations with platforms developing lending products, asset managers and treasuries evaluating funding mandates, and financial institutions exploring how to finance onchain collateral pools.

Disclaimer

This report is prepared by RWA.xyz for educational and informational purposes only. It does not constitute financial, legal, or investment advice. The information herein is based on publicly available materials as of October 2026. Product structures, parameters, and performance may have changed. Readers should conduct their own due diligence and consult qualified advisors before making investment decisions.