The global cryptocurrency market has always been shaped by cycles and narratives. Historically, Bitcoin halving events served as key markers for market phases, guiding investors through periods of growth and consolidation. However, with the recent approval of Bitcoin and Ethereum spot ETFs, the crypto ecosystem is now more closely aligned with traditional financial markets—introducing new variables that influence investor behavior and market dynamics.
In this evolving landscape, understanding cyclical patterns and identifying emerging narratives is more critical than ever. As innovation drivers in the space, leading investment firms are at the forefront of shaping the next wave of blockchain evolution. This installment of the Crypto Evolution series brings together insights from OKX Ventures, Multicoin Capital, and 1kx to explore the past, present, and future of Decentralized Finance (DeFi)—a cornerstone of Web3’s financial infrastructure.
The Past and Present of DeFi
What Has Driven DeFi’s Growth?
OKX Ventures (Esme Zheng): The roots of DeFi trace back to 2018, when Ethereum co-founder Vitalik Buterin suggested that decentralized finance would be blockchain’s first major real-world application. From 2018 to 2020, three foundational pillars emerged: decentralized stablecoins, spot trading via DEXs, and lending protocols.
MakerDAO’s DAI became the native currency of the DeFi economy, enabling trustless borrowing and stable on-chain transactions. Meanwhile, Uniswap and Bancor introduced automated market makers (AMMs), allowing users to trade tokens without intermediaries while maintaining self-custody. This shift empowered peer-to-peer finance and laid the groundwork for synthetic assets and yield-generating instruments.
As demand surged, so did protocol diversity. Lending platforms like Aave and Compound enabled users to earn interest or borrow assets using collateral. By 2020, DeFi had replicated core financial primitives—trading, lending, and stable value exchange—entirely on-chain.
The "DeFi Summer" of 2020 was fueled by yield farming and liquidity mining, where protocols incentivized participation with token rewards. This created a flywheel: more liquidity attracted more users, driving up token prices and media attention.
Post-2020, DeFi matured into its second layer. Derivatives platforms like dYdX introduced futures and options trading. Liquid staking protocols such as Lido accelerated Ethereum’s staking adoption, while innovations like Distributed Validator Technology (DVT) enhanced node security.
With the rise of Layer-2 solutions and fragmented liquidity across chains, cross-chain DeFi became essential. Projects like Orbiter and Zeus emerged to bridge ecosystems securely and efficiently.
Since 2022, DeFi has increasingly integrated with real-world assets (RWAs). Institutional players like BlackRock have launched tokenized U.S. Treasury funds on Ethereum, offering stable yields in a transparent environment. Security-focused protocols like Eigenlayer and Babylon are redefining economic trust through re-staking and shared security models.
Ultimately, DeFi thrives on open finance—removing intermediaries to reduce costs, increase transparency, and expand financial inclusion globally.
Multicoin Capital (Kyle Samani): While OKX Ventures outlined the structural evolution well, we emphasize three unique value propositions that CeFi cannot match:
- Self-custody: Users retain control of their assets while trading or lending.
- Access to long-tail assets: DeFi enables early exposure to emerging tokens before centralized exchanges list them.
- NFT trading: Nearly all NFT volume occurs on DeFi platforms—CeFi exchanges barely participate.
👉 Discover how self-custody transforms financial control in DeFi today.
1kx (Mikey 0x): DeFi adoption was initially driven by spot token trading, with Uniswap V2 democratizing market-making. Its uniform pricing curve removed informational advantages, creating a fairer system for passive liquidity providers.
The second wave came from yield optimization. Yearn Finance pioneered yield farming, turning token inflation into passive income. This sparked speculation, liquidity growth, and eventually “DeFi 2.0,” where protocols promised higher returns through novel incentive structures.
Thirdly, advancements in on-chain trading mechanics boosted efficiency. Uniswap V3 introduced concentrated liquidity, improving capital efficiency and price execution. Perpetual platforms like dYdX and Hyperliquid enhanced UI/UX, making decentralized trading more accessible.
GMX’s pooled perpetuals model allowed passive LPs to earn fees and counterparty profits—an innovation in risk distribution.
Critically, Layer-2 scaling has brought retail participation into focus. Average trade sizes on Uniswap have dropped from thousands to under $100—evidence of mass user onboarding.
Major Challenges Facing DeFi
OKX Ventures (Esme Zheng): Despite progress, DeFi faces three systemic hurdles:
- Underdeveloped infrastructure: Compared to traditional finance’s ATMs, branches, and payment rails, crypto still lacks seamless onboarding tools. Solutions like account abstraction (ERC-4337) and smart accounts can simplify access for newcomers.
- Liquidity fragmentation: Assets are scattered across L1s and L2s. Even within ecosystems, liquidity is siloed across competing protocols. This raises slippage, increases costs, and weakens leverage opportunities.
- Inefficient governance: Most DeFi protocols rely on manual voting and static smart contracts. Integrating reliable off-chain data remains challenging. The future lies in dynamic, data-driven governance that adapts in real time.
Multicoin Capital (Kyle Samani): The foundational primitives—spot trading, lending, bridging—are now established. The next frontier is on-chain derivatives, particularly perpetual contracts and options.
The primary challenge? Performance during high volatility. These systems are technically complex and require robust infrastructure. That’s why we’re excited about Drift, built natively on Solana—a high-performance chain optimized for fast settlement and low latency.
1kx (Mikey 0x): A dominant trend is vertical integration. Perpetual platforms are launching memecoin launchpads, building stablecoins, or even creating entire ecosystems. Owning the full user journey creates defensible moats.
However, this risks worsening liquidity fragmentation and user churn across chains.
On the primitive side, we’re seeing signs of “DeFi 3.0”—a push for maximum composability and efficiency:
- Morpho introduces vault managers into lending markets.
- Euler v2 targets long-tail assets.
- Uniswap v4 will support customizable logic hooks (“if-then” rules), enabling new use cases like prediction markets or options built directly on AMMs.
User experience remains the biggest barrier. DEX spot volumes are still a fraction of CEX volumes; perpetuals lag even further. But progress is underway: account abstraction via Safe and Rhinestone is streamlining wallet interactions.
👉 Explore how next-gen wallets are simplifying DeFi access for millions.
The State of DeFi in the New Cycle
What Role Will DeFi Play Going Forward?
OKX Ventures (Esme Zheng): Today’s surviving DeFi protocols resemble blue chips—more stable, with stronger alignment between token value, revenue, and fundamentals.
Current trends center around ETH/BTC re-staking, new L1s (e.g., Berachain), and L2 ecosystems competing for users. DeFi is shifting toward granular primitives rather than monolithic protocols.
Ethereum once held over 95% of Total Value Locked (TVL); now it’s around 60%. Competing L1s and L2s claim nearly one-third collectively. Even Bitcoin’s share has risen to ~1%, thanks to Ordinals and Runes enabling DEXs and memecoins on Bitcoin.
New narratives dominate: native yield, re-staking, and RWA tokenization are driving activity. EigenLayer’s TVL exploded from $1.3B to $20B in early 2024—becoming the second-largest DeFi protocol after Lido.
These developments signal a maturing ecosystem where real economic activity underpins growth—not just speculation.
Multicoin Capital (Kyle Samani): Each cycle brings a new meta-narrative. Last cycle: NFTs. This cycle: memecoins.
Almost all memecoin trading happens on Solana-based DeFi platforms. Why? Fast, cheap transactions lower barriers to entry. And every memecoin launches with native on-chain liquidity—no centralized gatekeeping.
This isn’t incidental—it reflects DeFi’s role as an open launchpad for financial innovation.
1kx (Mikey 0x): For crypto-native users, DeFi continues to enable leverage, trading, lending, borrowing, and yield generation—with increasing efficiency.
Memecoins often deploy on Uniswap V2 due to simpler liquidity management versus V3.
For institutions, DeFi is gaining legitimacy through RWA adoption. BlackRock and Franklin Templeton are tokenizing Treasuries; native players like Ondo and Superstate are close behind. On-chain U.S. Treasury equivalents now exceed $2 billion.
Compliance-focused chains like Aethos and Sphere are building frameworks compliant with U.S. AML/KYC regulations—bridging institutional trust with decentralization.
Where Will DeFi Innovate Next?
OKX Ventures (Esme Zheng): The next phase must prioritize practicality, organic growth, and simplicity—proving DeFi as a viable alternative to traditional finance.
Key enablers include better fiat on-ramps, smart accounts, and intent-based interfaces. Protocols like Across, Connext, and UniswapX are pioneering “intent-centric” designs: users declare desired outcomes (e.g., “swap ETH to USDC”), and the system handles complexity behind the scenes.
The future is modular:
- Uniswap is evolving into a liquidity layer via modular AMMs.
- Version 5 may lead toward application-specific chains.
- Modular lending abstracts core logic for flexibility and security.
Even with blockchain inefficiencies compared to centralized databases, its permissionless access and composability compensate—especially as primitives become interchangeable.
1kx (Mikey 0x): Verticalization will continue as protocols capture more value per user. However, cross-chain interoperability tools—like chain abstraction and gas abstraction—will ease capital movement between rollups.
Non-EVM ecosystems also have breakout potential in the coming year.
Investment Outlook: Opportunities in the New DeFi Era
Core Themes Shaping Investment Strategy
OKX Ventures (Esme Zheng): Practicality is the strongest narrative today. First-mover advantage matters less than achieving product-market fit.
Key areas:
- Re-staking & AVS: EigenLayer and Babylon enhance shared economic security.
- Real yield models: Protocols like Aave now generate revenue through fees and buybacks—not just token emissions.
- Risk isolation: Aave’s Umbrella module separates asset risks; credit scoring could personalize interest rates.
- Privacy + governance: ZK tech enables compliance without sacrificing privacy; AI-driven governance improves responsiveness.
The future belongs to sustainable models—moving beyond Ponzi-like speculation toward real utility-driven growth.
Multicoin Capital (Kyle Samani): The biggest opportunity lies in on-chain derivatives. We’re only beginning to explore what’s possible with perpetuals and options.
They can expand financial inclusion, onboard new asset classes, and offer better hedging mechanisms. We believe Drift is best positioned to lead this transformation on Solana.
👉 See how on-chain derivatives are reshaping global finance
1kx (Mikey 0x): Long-term investing requires focusing on teams with unique distribution advantages—not just technical innovation.
Narratives matter:
- RWAs: Institutional adoption hinges on transparency and cost reduction.
- “Onchain CEX”: Platforms like Hyperliquid start with perpetuals but evolve into full ecosystems—including spot trading and launchpads.
As the market matures, investors demand real cash flows and growth metrics—not just hype. Valuations reflect high expectations—but delivery may take longer than anticipated.
Frequently Asked Questions
What is driving DeFi growth in 2025?
The main drivers include re-staking (e.g., EigenLayer), real-world asset tokenization (e.g., BlackRock’s tokenized Treasuries), memecoin trading on fast chains like Solana, and modular infrastructure enabling better user experiences through intent-based design.
How does DeFi differ from traditional finance?
DeFi removes intermediaries using smart contracts, enabling permissionless access, self-custody, transparency, and composability. It reduces transaction costs and increases financial inclusion globally—though UX challenges remain.
Why is re-staking important for DeFi?
Re-staking allows users to reuse staked assets (like ETH) to secure additional networks or services (AVS), unlocking new yield streams while enhancing ecosystem security—a cornerstone of shared economic security models.
Can DeFi compete with centralized exchanges?
While CEXs still dominate volume, DeFi offers superior composability, self-custody, and innovation speed. With improvements in UX (e.g., account abstraction) and performance (e.g., L2s), DeFi is closing the gap rapidly.
What are the biggest risks in DeFi today?
Major risks include smart contract vulnerabilities, liquidity fragmentation across chains, governance centralization, regulatory uncertainty, and systemic risks from interconnected protocols relying on similar underlying assumptions.
Is yield farming still relevant in modern DeFi?
Yes—but it's evolving. Instead of pure token inflation ("fake yield"), modern protocols focus on "real yield" generated from actual fees or revenue streams—making incentives more sustainable long-term.
Keywords: DeFi, decentralized finance, re-staking, real yield, RWA tokenization, intent-based design, shared economic security