Fragmentation and Curation in DeFi Lending
Lending and borrowing remains one of the most powerful use cases in DeFi. It serves as the base layer of capital efficiency powering leverage and base yield across the ecosystem. As a power-user, your options are plentiful both in terms of assets and protocols. But this abundance comes at a cost, the ecosystem is fragmenting faster than most users can follow.
Even as a user deeply involved in DeFi day to day, stepping away for even a few weeks makes it easy to lose track of new yield opportunities, new markets, and evolving risks. If it’s hard for power users, what chance does the next wave of users have?
The next unlock in lending and borrowing isn’t more protocols or even more markets, but better distribution and curation.
The Rise (and Risk) of Modular Lending
This problem of fragmentation in lending isn’t new. One of my favourite products from 2022 was Rari Capital’s Fuse product. Those partaking in DeFi summer will remember their lending pool architecture where any user could spin up a market with a number of assets and custom parameters - allowing niche lending markets to be spawned by anyone. This marked the beginning of the shift from monolith lending markets to increasingly curated markets.
More recently Morpho, Euler and Fluid’s isolated dual pair markets and vault infrastructure takes this model a step further. While each underlying market is a lend/borrow pair, they all introduce a similar concept of vaults that bundle exposure across many such markets and outsource the task of allocation to DeFi-native risk managers or to the team themselves.
When Choice Becomes a Burden
But this modularity comes at a cost. For just one asset, users can face dozens of vaults, strategies, and curators—each with different risk-return tradeoffs. Under the hood, every vault is a bundle of micro-markets, each competing for capital and attention. Take a look at the view of a user wanting to lend USDC to a Morpho market using their vaults below (note: this is just a subset of the available vaults for USDC).
Choice, modularity, and composability are core strengths of DeFi. They’ve enabled a level of experimentation and flexibility that’s unmatched in traditional finance, but in their current form, these same strengths are becoming liabilities for users. A simple task like allocating USDC to earn yield on Morpho now requires navigating dozens of subtly different options, often with little to no standardized guidance on risk, although you can see the lending markets these assets are being allocated to under the hood within each vault. With no guidance or metrics, users are left to research each curator, guess where to best allocate, or follow whoever offers the most points that week.
Aggregation Layers and Their Limits
While there have been clear attempts to improve distribution and curation in DeFi, most solutions still fall short of giving users real clarity. Yearn pioneered one of the earliest models for abstracting complexity, offering a single entry point that allocated capital across multiple strategies behind the scenes using outsourced “strategists”.
Instadapp and other UI layers approached the problem through a consolidated interface, allowing users to manage positions across different protocols from one dashboard. These efforts pushed the space forward, but they primarily improved convenience, not understanding. Today, users are forced to choose between two suboptimal paths: they can opt into an aggregation layer that simplifies interaction but obscures where their capital is going and what risks they're taking, or they can go fully manual, allocating liquidity across fragmented markets themselves with a better grasp of risk, but at the cost of time, constant upkeep and a management nightmare. Neither path feels like the future.
Curators: Bridging the Gap
That’s where curators - on-chain strategists and risk managers, are starting to play a more critical role. While this isn’t a new concept in DeFi (Yearn’s early strategists were already fulfilling this function), the last few years have seen the rise of more formalized, DeFi-native asset managers and risk curators. Think of curators as part asset manager, part strategist. They actively choose where capital should go across fragmented markets, while giving users a simpler way to gain exposure.
Teams like MeV Capital, Gauntlet, Re7, Steakhouse, and many more are increasingly partnering with protocols to build strategies, launch tokenized vaults, and help users allocate capital intelligently. Just as in traditional finance, not every user has the same appetite for risk and curators can tailor vault strategies to serve different profiles, from conservative capital preservation to high-yield, higher-risk exposure. This creates space for more personalised capital allocation without requiring every user to be a full-time risk analyst. Curators offer the most promising trade-off we have today. As composable vaults become more interoperable, there’s potential for an entirely new layer, one that doesn’t just aggregate protocols, but curates expertise itself.
Where to from here?
Solving this problem is no simple feat. Balancing meaningful insight with a streamlined user experience, especially across dozens of composable markets with differing assets, is inherently complex. In traditional finance, this role is played by a web of fund managers, structured products, and rating agencies. But even that system is far from perfect. The 2008 financial crisis was in part a failure of these very intermediaries to accurately assess and communicate risk.
DeFi has the chance to do better but it must wrestle with the same fundamental tension: how to surface enough signal for users to make informed choices, while abstracting away just enough complexity to keep them engaged. I don’t have a clean answer yet, but if you’re building in this space I’d love to connect - reach out to me on X @blockbandit