Monad’s $909 Million Credit Economics: How High-Performance Public Chains Can Break Through via Lending?
Author: Alea Research
Compiled by: TechFlow
TechFlow Summary: Developed under the leadership of the former quantitative engineering team from Jump Trading, Monad initially gained market traction with its parallel EVM and ultra-fast matching performance. However, latest on-chain empirical data indicates a disruptive evolution in the network's business model, as its ecosystem revenue structure has completely shifted from high-frequency trading to lending interest.
In a context where the total decentralized finance value locked across the network (TVL) faces cyclical contraction, Monad has achieved an nearly eightfold jump in market share through the deployment of Aave and institutional unsecured credit vaults. This research report deeply analyzes its credit-driven liquidity loop, annualized interest models, and the token value capture path under low Gas fee mechanisms.
Key Takeaways
Market Share Expansion Against the Trend: Over the 10 months ending at the end of September 2026, the total TVL of on-chain DeFi protocols fell from $111.4 billion to $95.5 billion, while Monad's market share steadily jumped from 0.14% to 1.09%. As of October 27, Monad's DeFi TVL ranks tenth among all public chains.
Lending Interest Dominates Ecosystem Revenue: Borrowers currently account for the vast majority of fee revenue generated by on-chain applications on Monad. In September, lending applications contributed 71% of total application fees across the network, while trading applications accounted for only 16%. During the month, borrowers paid an average annualized interest rate of approximately 6.2% on an average loan balance of $903 million.
Higher Lending Leverage per Unit of TVL: For every $1 of TVL deposit on-chain, Monad generates 89 cents in lending capital, with a capital utilization rate far exceeding Ethereum's 42% and Base's 45%. Institutional certified credit vaults hold $287 million in loans, and Aave's Monad market has risen to third place globally in terms of fee volume.
Token Valuation Significantly Discounted: MON's circulating market cap accounts for only one-quarter (0.25x) of its on-chain DeFi TVL, whereas the market caps of AVAX, SUI, SOL, and SEI generally trade between 7x and 12x their TVL. Since its first full trading day, MON's price performance has also significantly outperformed AVAX, SUI, SEI, and APT.
Fig: Comparison of relative price trend performance between MON and competing public chain tokens since their first full trading day
Nearly Eightfold Market Share Expansion Against the Trend
Monad's officially stated vision is to establish open access to fair financial markets on a neutral underlying network. Its foundation describes the entire economic system as a self-consistent virtuous cycle: payment settlement introduces on-chain US dollar liquidity, the lending market puts capital to work, and spot trading completes final asset pricing.
This cycle has demonstrated strong counter-cyclical resilience against the backdrop of a broadly sluggish market. The total TVL of mainstream DeFi protocols slumped from $111.4 billion on December 1, 2025, to a low of $68.2 billion on June 30, 2026, before recovering to $95.5 billion at the end of September. Over the same period, Monad's DeFi TVL surged from $155 million to $1.04 billion, lifting its share of the total network scale from 0.14% to 1.09%, achieving an astonishing growth of nearly eight times.
Fig: Monad's market share climbs to 1.09% as on-chain DeFi TVL hits a low of $68.2 billion
The key inflection point for growth occurred in July. Aave officially launched on Monad on July 2, opening 12 lending markets on its first day; three weeks later, the Monad Foundation further compressed block production time to 300 milliseconds. By the end of October, the network supported $985 million in DeFi TVL and $701 million in stablecoin assets, representing explosive growth compared to the $237 million recorded in the mainnet's inaugural week.
Restructuring Fee Revenue: Lending Interest Becomes the Core Pillar
In December 2025, 71% of the fees generated by applications in the Monad ecosystem came from trading activities, including spot swaps, asset launchpads, and derivative trading apps. However, by September 2026, lending protocols accounted for 71% of total application fees across the chain, while trading app fees plummeted to 16%, with yield vaults and curator protocols contributing the remaining 9%. Driven by this structural shift, the outstanding loan volume across Monad's six major lending platforms soared from $117 million on December 31, 2025, to $909 million on September 30, 2026.
Fig: Sequential launches of the Valos credit vault and Aave drive stepwise growth in lending interest revenue
The entire lending landscape is dominated by two major players. By the end of September, Accountable-certified institutional credit vaults accounted for 33% of Monad's total on-chain lending balance, while Aave captured 29%, with native protocols Morpho, Euler, and Curvance splitting the remainder of the market share.
Fig: Institutional credit and Aave combined account for roughly three-fifths of Monad's $909 million total lending volume
Accountable's market share core stems from institutional credit. Institutional market maker Valos opened an initial credit vault on Monad in February with a limit of $100 million, cumulatively deploying over $1 billion in funds across various market makers. The Accountable network provides depositors with continuous on-chain verification of borrowers' financial conditions, completely overcoming the drawback of other public chain credit vaults relying on low-frequency periodic reports. In July, Valos raised the upper limit of its credit vault on Monad to $150 million.
Currently, Monad supports up to $287 million in on-chain unsecured institutional loans, ranking second across all tracked public chains behind Ethereum mainnet's $418 million. These loans feature no hard on-chain overcollateralization requirements but are instead backed by borrowers' balance sheets and off-chain legal agreements. Market makers borrow stablecoins to conduct market-making arbitrage on Monad's decentralized exchanges and continuously pay lending interest back to the protocol.
Fig: 89 cents of every $1 deposited on-chain circulates as lending assets, with capital utilization far surpassing Ethereum and Base
In terms of capital flow and distribution mechanisms, borrowers pay interest to liquidity depositors through various lending applications. Taking Aave as an example, the protocol extracts a reserve from the interest (10% for stablecoins, up to 20% for highly volatile assets), while the majority of the remaining interest income goes directly to depositors. In September, depositors on Aave's Monad market earned an average annualized APY of 5.8%, while borrowers paid an average lending rate of 6.4%. Morpho, Euler, and Curvance, on the other hand, pass through almost all interest directly to depositors, extracting only a small protocol management fee when explicitly approved by community governance.
Aave Rises to Third Largest Fee-Generating Market Globally
A case study published by Monad in September revealed that Aave's Monad market quickly rose to become the third-largest fee contributor among the protocol's deployments across all chains, trailing only Ethereum mainnet and Arbitrum, just 46 days after going live.
Fig: Aave's lending scale on Monad caught up with Avalanche within two weeks and briefly matched Base and Arbitrum in August
The loan balance of Aave on Monad surpassed Avalanche within two weeks of launch and briefly exceeded Base and Arbitrum in mid-August. Throughout September, its capital utilization remained consistently stable at 78%, significantly higher than Ethereum mainnet's 65% and Arbitrum's 61%.
Spot Matching Fees Drop to as Low as 1.2 Basis Points
While credit scales expanded explosively, the volume of spot trading on Monad continued to grow rapidly, with actual trading costs dropping significantly. Over the 30 days leading up to September 30, spot trading on Monad averaged just 1.2 basis points (0.012%) in liquidity pool fees, drastically lower than the 7.3 basis points recorded in December 2025. Within the same timeframe, global monthly spot trading volume surged from $412 million to $4 billion.
Fig: As monthly trading volume breaks $4 billion, Monad's spot liquidity pool average fee drops to 1.2 basis points
Two underlying mechanisms working in tandem drove this drastic reduction in trading costs: First, Uniswap V4 handled roughly half of the chain's total spot trading volume in the month leading up to October 26, with its Hooks mechanism allowing liquidity providers to quote tighter bid-ask spreads for stablecoin pairs; Second, market makers began widely adopting internal routing algorithms to match trades across private pools, bypassing public AMM pools with wider spreads.
MON Token Value Capture and Significant Valuation Discount
The MON token is used to pay Gas fees and secures network consensus through staking mechanisms. Intentionally designed to maintain extremely low Gas rates: in September, users across the network collectively paid only $33,000 in Gas fees, averaging less than one-tenth of a cent per transaction. Staking rewards for validator nodes primarily stem from token inflation, yielding an approximate annualized rate of 4.2%.
Fig: Horizontal comparison of market cap and FDV multiples relative to TVL, showing MON's valuation multiple significantly below peers
Since its first full trading day in November 2025, MON has cumulative declined by 29%, while AVAX, SUI, SEI, and APT experienced declines ranging from 41% to 68% over the same period. Based on circulating market cap, MON's market value accounts for only about 0.25x its on-chain DeFi TVL, whereas comparable competitors generally maintain between 7x and 12x; even when measured by fully diluted valuation (FDV), MON's valuation stands at just 1.8x its DeFi TVL, far below the 9.4x median for peer projects. Previously, Monad introduced a discounted liquidity program targeting early seed-round investors, but according to official disclosures, almost all early investors rejected the discounted cash-out offer.
Annualized Interest Model: $56.5 Million Annual Revenue and Credit Expansion Projections
Monad's current fee revenue base essentially consists of a massive stock of outstanding loans, with annual interest income calculated as the product of the outstanding loan volume and the average weighted lending rate. As of September 30, the outstanding loan balance across six chain-wide lending platforms reached $909 million, with the average weighted lending rate corresponding to actual fees in September standing at 6.2%. At this rate level, borrowers pay up to $56.5 million in annualized interest to Monad's depositors and lending applications each year.
Fig: Sensitivity matrix for annualized interest revenue based on the product of outstanding loan volume and weighted interest rate
At a base rate of 6.2%, every $100 million increase in total outstanding loans across the network generates an additional $6.2 million in annual interest revenue. If the outstanding loan volume doubles to approximately $1.818 billion, annualized interest would exceed $113 million at the same rate; even if the overall lending scale contracts by a quarter and the rate drops to 4.2%, annualized interest revenue would still reach $29 million. This sensitivity matrix is not merely an abstract future forecast; the data growth logic outlined above aligns highly with several heavyweight deployments currently underway: including the launch of Aave V4, private credit introduced by infinFi Prime for fintech demand deposit accounts, StraitsX's planned issuance of XSGD and XUSD stablecoins on Monad in early 2027, and the custom-built private clearing and settlement domain specifically tailored for institutional investors by Category Labs.
In its first year operating on the mainnet, Monad successfully built the financial economic ecosystem originally envisioned by its founding team, with credit serving as the core engine of the entire ecosystem. Top-tier quantitative trading firms borrow substantial funds from verifiable vaults, Aave borrowers pay a capital premium higher than that on Base or Arbitrum, and every credit transaction settles finally within 600 milliseconds. Amidst a broader macrocycle of contracting total sizes across the DeFi industry, Monad has leveraged its decentralized network guarded by MON stakers to achieve an explosive nearly eightfold growth in outstanding lending volume.