DeFi’s Great Flippening: Decentralization started a financial revolution whose survival depends on its capacity to evolve. ETH-Lend, now Aave, was launched on the Ethereum blockchain in 2017 during the boom of initial coin offerings. 2020-21 was the right time, and Aave was the right place for rapid growth. Aave’s total value locked (TVL) – the value of all assets deposited in a protocol – rose from less than $2 billion at the end of 2020 to a peak of nearly $20 billion in 2021. Borrowers paid higher rates to attract capital – “yield farming” routinely provided double-digit rates at a time when US rates were near zero, and the financial system was flush with liquidity. TVL crashed to a low of less than $4 billion last year, dragging DeFi rates down in the process. Now, yields on the three largest US dollar stablecoin pools range from 2.2% to 2.6%, comfortably below the 4.8% yield on Treasury Bills. What is behind the DeFi yield flippening? Demand. Demand for leverage drives DeFi yields, not credit. Credit is well managed by overcollateralized underwriting – loans are repaid either pleasantly or harshly through liquidation of collateral if necessary. Aave has a lot of reps – 230,911 loans have been fully repaid. Today, demand is low, and the supply of digital dollars is sticky from those using stablecoin for its high-velocity features rather than cash management yield. The DeFi flippening is telling investors either move out of the risk spectrum or move to traditional money funds. It’s also telling protocols that overcollateralized lending is a niche market. The world runs on credit – DeFi must evolve to survive and thrive.