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The State Of DeFi On Solana: Stability And Mass Adoption Requires A Native Stablecoin

 

By EddieObadiah — Contributor Apr 30, 2025

 

 

Decentralized finance (DeFi) serves as the foundational purpose for the existence of cryptocurrency and the apparent misalignment between the design of most layer 1 blockchains and their corresponding DeFi protocols contradicts the original objectives of the ecosystem.

 

The Solana blockchain, along with several other leading Layer 1 blockchains, host decentralized finance (DeFi) markets with billions in total value locked (TVL). Current data from Solanaproject.com indicates that the TVL in Solana-based DeFi protocols is approximately $16.94 billion. This significant figure positions the leading blockchain in consumer adoption — Solana, as a prominent contender in the decentralized finance ecosystem. 

 

Nevertheless, Solana faces the same challenges as any other Layer 1 blockchain, specifically the inability to create and manage debt, sustainably without the potential devaluation of its native governance asset, SOL.

 

Active debates over slashing inflation is evidence of the flaw that exists in the current system and a native stablecoin solves this. 

 

In Brief

 

● Solana is home to top DeFi applications from decentralization trading to yield farming solutions. 

 

● Kamino finance is the leading DeFi application on Solana when it comes to lending and borrowing. 

 

● A Solana transitioning to a dual-token system incorporating a native stablecoin is key to mass adoption and DeFi stability. 

 

● A native stablecoin solves Solana’s inflation problem and cost of yield across DeFi protocols. 

 

Solana hosts a robust array of decentralized finance applications. Its current monolithic architecture allows DeFi applications on the Solana blockchain to be more composable, facilitating user-friendly design and deployment.

 

While there have been discussions regarding the potential adoption of modular components, Solana remains dedicated to scaling its layer 1 infrastructure without shifting to a modular design, in contrast to Ethereum and emerging EVM-compatible chains.

 

Modularity has proven to contribute to the fragmentation of liquidity, resulting in a significant loss of revenue for layer 1 (L1) blockchains. Furthermore, the modular state design inherently incentivizes development outside of the L1. Consequently, decentralized finance (DeFi) applications operating atop modular blockchains often encounter considerable friction, which adversely affects consumer adoption. 

 

Solana’s competitive advantage in hosting applications with heightened consumer interest and adoption is a direct testament for the value proposition inherent in its state design.

 

The State Of DeFi On Solana

 

Solana hosts a vibrant DeFi market that facilitates decentralized trading solutions, lending and borrowing applications, and optimized yield opportunities, collectively generating hundreds of billions of dollars in annual decentralized exchange (DEX) volumes. 

 

According to data from DefiLlama, the DEX volumes for 2025 are approaching half a trillion dollars, currently standing at $487.597 billion, just one month into the second quarter.

 

Solana DEX volume Source: Defillama.com

 

As indicated in the chart above, January emerged as the most significant month for Solana regarding decentralized exchange volumes, achieving a peak trading volume of $258.492 billion. Conversely, March represented the lowest point thus far, while April has experienced a notable growth of approximately +25.50% in volume, reaching $70.631 billion and surpassing March's recorded volume of $52.617 billion.

 

In addition to its decentralized trading solutions, Solana hosts a range of premier lending and borrowing applications, providing flexible loan options and competitive yields for asset lenders. 

 

Kamino Finance stands out as the preeminent protocol on the Solana network for lending, currently featuring a total value locked (TVL) of $1.98 billion and an impressive aggregate of over 151,000 loans.

 

Kamino's yield solutions provide an annual percentage yield (APY) of up to 4.57% on USDC stablecoin, with significantly higher yields available for non-stable cryptocurrencies. When compared to competing decentralized finance (DeFi) platforms on various blockchains and centralized exchanges, Kamino’s yield opportunities deliver superior returns on deposited assets.

 

For instance, when depositing or supplying USDC to Aave protocol on Ethereum, lenders currently stand to earn an estimated annual percentage yield of 2.88%, which is -37% lower than yield offered on Kamino finance. 

 

A Native Stablecoin On Solana

 

Solana has demonstrated its efficacy as the most appropriate blockchain for consumer applications; however, it currently lacks a critical element necessary for enhancing its adoption among consumers.

 

Decentralized finance encompasses more than just lending platforms and decentralized trading applications. In fact, these prevalent DeFi solutions cater predominantly to individuals possessing investable capital, which does not accurately reflect the reality for the majority of consumers. Nevertheless, the larger consumer population represents a significant segment that contributes meaningfully to economic value generation, something that Solana needs to capitalize on. 

 

Stablecoins have emerged as a significant topic of discussion, especially among institutions entering the cryptocurrency ecosystem for the first time. The growing interest from traditional financial institutions in adopting, developing, or deploying stablecoins highlights their potential to play a pivotal role in the cryptocurrency markets.

 

Consequently, there is an urgent need for competitive decentralized alternatives. Solana is strategically positioned to lead in decentralized finance, particularly if it chooses to transition to a dual-token system that includes a native stablecoin.

 

The introduction of a native stablecoin on the Solana blockchain has the potential to profoundly transform the DeFi landscape within this high-performance layer 1 ecosystem. A key topic of ongoing discussion within the Solana community is the issue of SOL inflation, which a native stablecoin could effectively address, thereby enhancing the scarcity of SOL as an asset.

 

Inflationary tokens represent an implicit tax on non-staked SOL holdings. By denominating these staking yields in stablecoins, the financial burden associated with inflation could be mitigated, as stablecoins function as debt instruments. This approach could foster the development of consumer solutions that drive adoption, thereby limiting the active creation of SOL and alleviating sell pressure stemming from SOL yields across various DeFi protocols.

 

The significance of incorporating a stablecoin at the Layer 1 (L1) level lies in the ability of decentralized finance protocols to provide yield in the form of a debt token. This approach allows for the generation of yield from its underlying sources without diminishing the value of the native governance assets through the issuance of new tokens.

 

When yield distributions predominantly occur in stablecoins, lenders and yield farmers experience diminished motivation to liquidate their earnings for the purpose of capitalizing on potential market fluctuations. 

 

This transition fosters a more resilient DeFi market, as non-stable DeFi assets can experience sustainable growth. Simultaneously, the ecosystem maintains the necessary incentives for nodes to secure the network and for liquidity providers to consistently infuse capital, thereby ensuring seamless trading across the DeFi landscape.

 

Nonetheless, the question of the sustainability of this model arises, yet it can be effectively addressed.

 

The cryptocurrency ecosystem inherently generates debt through inflationary tokens, and certain blockchains and protocols may incur detrimental debt in an effort to attract investments from yield-seeking participants.

 

The introduction of a stablecoin to replace the majority of yield generated can effectively mitigate selling pressure on the native assets of a protocol or blockchain. However, true sustainability is achieved when these stablecoins are integrated into diverse consumer applications, establishing active use cases that incentivize yield earners to retain and directly utilize the stablecoin for transactions involving goods and services throughout the ecosystem.

 

The advantages of this scenario for SOL are significant. Although a native stablecoin on Solana serves as the primary yield token, its widespread adoption is likely to foster substantial liquidity between the stablecoin and SOL. This dynamic facilitates the transition of yield into SOL purchases, effectively increasing the asset's market capitalization while concurrently diminishing the value of the debt incurred through yield generation.

 

As adoption of the stablecoin increases, the value of SOL is expected to appreciate, thereby reducing the true cost of the associated debt.