Crypto Markets Recover as Rates and Lending Conditions Shift

In this report:

1. Tokenized equities move onchain as collateral

2. Robinhood Chain Brings Tokenized Equities and Lending Onchain

3. Morpho Brings Fixed-Rate Lending Onchain

4. Compound Targets Institutional Growth with $52M Initiative

5. Arc Goes Live, and Credit Starts in Dollars

Lending Market Update

June through mid-September marked a clear transition from deep correction to recovery and, more recently, consolidation in crypto. June was the weakest stretch, with BTC testing multi-month lows around $58k in late June before stabilizing through July in a range roughly between $56k and $64k. In August, BTC rose 25% and briefly traded above $82k in early September before retracing to around $76k as of September 16 amid a more challenging macro backdrop. A notable catalyst was a reversal in ETF flows, where August saw $3.52B of net inflows, the strongest month of 2026, against just $172M in July and $4.5B of outflows in June. The rally was also coincided with the expansion of U.S. Treasury long-end bond buybacks, which initially pushed longer-dated yields lower and weakened the dollar, creating a more supportive backdrop for BTC and contributing to a sharp short squeeze. ETF flows have since become more mixed in September as momentum from August moderated. Optimism around the CLARITY Act also supported sentiment, though the bill failed to advance in the Senate on September 15, falling short of the 60 votes needed in a procedural vote and adding to regulatory uncertainty across the industry.

CME annualized basis broadly moved with the recovery. After troughing near 3.8% in late June, basis widened through July and August, peaking around 6.7% in late August. Basis has since moderated and become more volatile in September, generally trading in the 5 – 6% range and ending the period around 5.3%. Meanwhile, Treasury yields moved meaningfully higher, narrowing the pickup offered by CME basis over risk-free rates. With Treasury yields moving closer to basis levels, the trade appears relatively less attractive despite the recovery in crypto markets.

The lending market remained orderly, with deleveraging continuing across platforms. Galaxy Research’s The State of Crypto Leverage Q2 2026 report showed that the total crypto-collateralized lending market fell to $56.16B (down $11.33B QoQ, and down 40% from the Q3 2025 peak of $78.7B), with Q2 the first quarter since Q4 2022 in which all three legs declined together- CeFi, DeFi, and the crypto-collateralized portion of CDP stablecoin supply. On the DeFi side, borrows dropped 27.61% to $20.43B, roughly 3x the pace of CeFi's 9.62% decline to $22.98B. The net effect was CeFi gaining relative share even as the overall market contracted, the first quarter since Q3 2023 that CeFi loans outstanding exceeded those of DeFi lending apps, with Galaxy Research reporting that Galaxy, Coinbase, Ledn, Arch, Sygnum and Milo all growing their books. Notably, the contraction has been stepwise rather than cascading- three consecutive quarters of 10%, 5% and 17% declines, against a 55% single-quarter collapse in Q2 2022, which pointed to gradual risk reduction rather than forced liquidations.

Key trends

Tokenized equities move onchain as collateral

Coinbase recently launched tokenized U.S. stocks natively on Base on August 24, beginning with NVDAc, METAc, AAPLc, and GOOGLc. Each token is a direct 1:1 claim on a real share, where institutional market makers buy the underlying stock, Alpaca Securities custodies it in segregated accounts, and Coinbase Onchain SPV Ltd holds it as bare trustee in a bankruptcy-remote structure. The tokens are composable across Base DeFi, with other protocols like Aave, Morpho and Euler live for lending and borrowing. The significance for credit markets is that this is the first time a major regulated issuer has put genuine equity claims into open lending rails, extending on-chain collateral beyond just digital assets. The implication is that on-chain credit could broaden from crypto’s own market cap toward the equity and fixed income complex, potentially making lending activity less dependent on the crypto cycle, which is a structural counterweight to the kind of collateral contraction seen this quarter where the decline from peak reflected asset prices. It also raises a topic that needs further clarification from lenders, as equity collateral carries different liquidity and settlement characteristics from BTC or ETH. Coinbase’s product is currently restricted to non-U.S. persons, and Chainlink’s feeds run 24/5 against tokens that trade continuously, meaning weekend collateral is marked to Friday’s close.

Robinhood Chain Brings Tokenized Equities and Lending Onchain

Robinhood recently launched its own Arbitrum-based Ethereum L2 on its public mainnet on July 1, built for tokenized real-world assets and shipped with Uniswap, Morpho, Chainlink and BitGo integrated at launch. Stock Tokens went live for 24/7 trading (currently only available for non-U.S. persons), deployable into lending pools and usable as collateral across DeFi, alongside Robinhood Earn. Robinhood Earn is a Morpho-powered product offering roughly 7% on USDG. An important thing to note is a TradFi platform with nearly 28 million funded users choosing to operate its own settlement layer rather than route through existing chains, funded in part by a $2B convertible note priced in June. For lending markets, this matters in two ways. First, distribution: potentially routing ~28 million retail users into DeFi lending brings a scale of deposit supply that on-chain credit has not previously had access to. Secondly, the structure differs from a tokenized share, as Robinhood’s Stock Tokens are tokenized debt securities issued by a Jersey entity, conveying price exposure without ownership, voting rights or direct dividend entitlement, and Robinhood operates the sole sequencer and controls issuance. As equity collateral migrates on-chain, the underlying legal structure on whether a token represents a share or a claim on the issuer, becomes a central input to how these assets are evaluated.

Morpho Brings Fixed-Rate Lending Onchain

In a continued effort to bring traditional credit markets onchain, Morpho launched Morpho Midnight, giving lenders and borrowers access to fixed-rate, fixed-term lending. Much of onchain lending relies on variable rates and open tenors, which can make it difficult to plan around a known cost of capital or return. Midnight is designed to address this challenge, and its customizable KYC gating can further help to attract institutional participants.

Existing attempts at fixed-rate markets are built on top of variable-rate markets rather than as a native primitive, where fixed rates are achieved by wrapping or tokenizing exposure to an underlying floating-rate pool. This can introduce basis risk against the underlying source, add a layer of risk on top of the base market, and can fragment liquidity. Morpho Midnight, by contrast, introduces fixed-rate lending at the protocol level rather than synthesized from a floating-rate position.

Defined rates and maturities align more closely with institutional credit markets than the utilization curve model most DeFi lending uses. The initial launch features a single cbBTC/USDC market on Base, with a roadmap that includes expansion into financing backed by real-world assets (RWAs). In the meantime, Morpho sits alongside existing Morpho Blue markets: lenders can earn variable rates on Blue while quoting fixed-rate offers on Midnight, capital is only committed once matched so it doesn’t sit idle while it waits.

Compound Targets Institutional Growth with $52M Initiative

Compound is also making a concerted push to attract institutional capital, beginning with a new leadership team and a $52 million budget approved by the DAO. The initiative follows a decline in the protocols TVL which has fallen from $12B in 2021 to roughly $1.2B today. The program aims to draw institutions by introducing RWA products and building infrastructure for the likes of banks, asset managers, and fintech companies.

Of the $52 million, $14 million is released at the onset, with the remainder held in reserve until the Foundation reaches specified development goals. The move positions Compound to compete with other protocols that have already established RWA lending markets.

Arc Goes Live, and Credit Starts in Dollars

Circle brought Arc’s public mainnet live on September 16. The chain is EVM-compatible, gas is paid in USDC, and settlement is built for sub-second finality. A permissioned validator set is producing blocks, including BlackRock, DTCC, Visa, Mastercard, ICE, and Galaxy. Circle also minted 10 billion ARC tokens around launch, while saying that is not a commitment to sell the token to the public.

Lending was on the network from the start. Aave, including a V4 market, Morpho, and Uniswap opened with the chain, and tokenized cash such as BUIDL and USYC is being lined up as collateral next to cirBTC. Galaxy curated two Morpho vaults on Arc – one USDC and one EURC – and Morpho on Arc took in more than $150 million of deposits on day one. That is the early read: dollar credit can now clear on Circle’s own rails, with fees in the same unit as the loan.

Notable News:

• The State of Crypto Leverage Q2 2026: An Orderly, Measured Decline

• Fed approves interest rate hike, signals one more to come this year

• Circle launches Arc mainnet with BlackRock and Visa among validators

• Morpho Launches Fixed-Rate Lending Protocol Midnight on Base

• Uniswap launches 'Earn' with Morpho to let users earn yield on idle crypto

• Euro Stablecoins Hit All-Time High as Tokenized Equities Reach $4.45B

• Visa combines VisaNet data with onchain lending to power stablecoin card working capital