From its peak of $270 billion to its flash crash, DeFi has ventured into the deep waters of financial infrastructure.

Author: Jae

In 2025, the DeFi (Decentralized Finance) market experienced a thrilling rollercoaster ride. At the beginning of the year, amid optimism fueled by the explosive growth of Layer 2 performance and the influx of institutional funds, the Total Value Locked (TVL) surged from $182.3 billion to a record high of $277.6 billion, making a trillion-dollar ecosystem seem within reach.

However, the sudden flash crash on October 11th in the fourth quarter was like a bucket of ice water, causing TVL to shrink drastically to $189.3 billion, wiping out the year's growth to a negligible 3.86%. This dramatic fluctuation tore open the true fabric beneath the glamorous narrative of DeFi: on one hand, there was the deep evolution of tracks such as staking, lending, and RWA; on the other hand, there was the vulnerability caused by excessive leverage and the hidden pain of governance fragmentation.

This has been a trial by fire. The market has witnessed Lido's crumbling dominance in the staking arena, Aave's arduous journey through governance infighting, Hyperliquid's fierce challenge from newcomers to its Perp DEX throne, and stablecoins' oscillation between yield chasing and regulatory framework constraints. In 2025, DeFi will no longer be merely an experimental ground for crypto natives; it is making its way, albeit with faltering yet resolute steps, into the deep waters of global financial infrastructure.

The TVL of the DeFi market initially rose but then fell, with the monopolistic structure continuing to solidify.

The curve showing the size of the DeFi market in 2025 forms a huge inverted V.

Starting at $182.3 billion at the beginning of the year, TVL reached a peak of $277.62 billion mid-year amid market frenzy and ecosystem explosion. However, a flash crash in the fourth quarter brought everything to an abrupt halt, with the year-end figure falling back to $189.35 billion, almost back to square one.

But beneath the surface, the structure of capital has undergone profound changes. The RWA (Real-World Asset) sector has emerged as a dark horse, with TVL surpassing traditional DEXs to become the fifth largest DeFi category. The capillaries of on-chain finance are extending deeper into the real economy.

Monopolies have become even more entrenched. The top 14 protocols, including Aave, Lido, and EigenCloud, account for 75.64% of the market share.

Meanwhile, the profitability of leading protocols is soaring, with the annual revenue of the top ten protocols more than doubling from $2.51 billion to $5.02 billion. Funds in the DeFi market are increasingly concentrating on a few core components.

Staking protocols have moved from being money-printing machines back to serving as a security foundation, but the Ethereum ecosystem still reigns supreme.

Staking was once the simplest and most straightforward way to generate returns in DeFi. In 2025, this sector underwent a de-bubbling and value correction, and staking protocols are evolving from a mere DeFi yield tool into an economic security engine for public blockchain networks.

The total value of pledged shares (TVL) has fallen from a peak of $92.1 billion in the middle of the year to $55.2 billion.

As security needs within the Ethereum ecosystem increase, over 35 million ETH (approximately 30% of the total supply) are locked in the validator network. However, Lido, the leading staking protocol, is seeing its dominance decline from its peak of over 30% to 24%. This is not a decline, but rather a sign that Ethereum staking is maturing, becoming more decentralized, and diversifying its options.

The most significant change in the staking sector lies in the implementation of compliance. In May 2025, the U.S. Securities and Exchange Commission (SEC) issued formal guidance clarifying that staking activities do not constitute a securities offering. This will clear the way for custodians and pension funds to allocate LST (liquidity-backed tokens) on a large scale. Today, LST is no longer just a tool for earning staking rewards, but rather a highly liquid and high-quality collateral that is penetrating into applications such as lending and derivatives.

Restaking protocols achieved a leap from concept to a multi-billion dollar market in 2025, essentially driven by an exponential increase in capital efficiency. EigenLayer transformed into EigenCloud, with its TVL (Value at Least) exceeding $22 billion, becoming the second-largest staking protocol. EigenCloud creates multi-tiered returns for holders by reusing staked ETH while providing security for multiple Active Validators (AVS).

Ether.fi achieved a TVL of over $8.5 billion and cumulative protocol revenue of over $73 million, solidifying its position as a leading liquidity restaking protocol.

The restaking protocol not only changed the staking logic of ETH, but also pioneered a new business model of "shared security". However, the staking sector experienced a significant capital rotation in 2025.

With the realization of airdrop expectations and the reduction of early incentives, funds are flowing from protocols lacking real utility to leading platforms with actual service revenue. This signifies that the staking sector has completed its transformation from speculation-driven to business-driven.

The lending sector has reached a new high in scale and entered a stage of professional segmentation.

Lending is the cornerstone of DeFi, with the sector's total value lending (TVL) reaching a record high of $125 billion and stabilizing at $91.6 billion by the end of the year.

With a market share of over 50%, Aave firmly holds the top spot. Even when it was embroiled in a governance civil war over "sovereignty" at the end of the year, its TVL remained above $54 billion, demonstrating the deep foundation of a leader.

Related reading: Cryptocurrency price drops, whales dump their holdings and exit: The DeFi governance dilemma seen in the Aave power struggle.

In terms of on-chain lending, deposits increased from $64.1 billion to $90.9 billion, a year-on-year increase of approximately 42%; outstanding loans increased from $26.6 billion to $37.6 billion, a year-on-year increase of approximately 41%.

It is worth noting that the deposit scale reached a peak of US$126.1 billion and the outstanding loan scale reached a peak of US$51.5 billion this year, both setting new historical records.

The capital utilization rate has consistently remained above 40% throughout the year, which is a considerable level.

Within the lending sector, a silent shift is underway: market preferences are massively shifting from CDP (collateralized debt position) protocols like MakerDAO to money market protocols like AAVE. Research from Galaxy Research shows a seesaw effect, with money market protocols accounting for over 80% of on-chain lending, while CDPs have shrunk to below 20%. This reflects users' preference for accessing funds in lending pools with high liquidity depth, rather than establishing relatively inefficient collateralized debt positions.

Meanwhile, modular protocols such as Morpho and Euler V2 meet the customized needs of professional users by creating risk-isolated lending vaults. The lending industry is moving away from a one-size-fits-all approach and entering a more refined and tiered professional era.

However, the pursuit of more capital-efficient unsecured loans remains a challenge that will not be overcome by 2025, although experiments based on user identity and credit scores, such as 3Jane, are underway.

Related reading: Paradigm leads the bet; how will 3Jane unlock the trillion-dollar DeFi unsecured lending market?

Yield-based protocols have become the infrastructure of DeFi, and the competitive landscape is gradually becoming more diversified.

2025 marked the year in which the yield sector transitioned from a niche market to DeFi infrastructure, with its TVL rising from $8.1 billion to $9.1 billion, a year-on-year increase of 12.5%, reaching a high of approximately $18.8 billion during the year.

In traditional finance, the fixed-income market is far larger than the stock market. The maturity of protocols such as Pendle has finally completed the crucial piece of the DeFi puzzle: interest rate trading.

Pendle establishes a predictable interest rate discovery mechanism on-chain by splitting assets into PT (principal tokens) and YT (yield tokens). The protocol not only achieves an order-of-magnitude leap in asset size, but also fills the gap in the on-chain fixed-income curve through its interest rate products.

In 2025, Pendle's TVL declined from $4.3 billion to $3.7 billion, a year-on-year decrease of approximately 13%. However, its cumulative revenue steadily increased from $17.99 million to $61.56 million, a year-on-year increase of 242%, demonstrating the resilience of the protocol's fundamentals. Even during market downturns, Pendle maintains a stable revenue-generating capability.

The new product Boros launched by the protocol further extends its business reach into the funding rate trading market, providing derivatives players with a powerful tool for hedging position costs, and is regarded as the protocol's second growth curve.

Related reading: Pendle's strategic expansion: The emergence of Boros, an innovation in funding rate trading paradigms.

The competitive landscape in the revenue-generating sector is evolving from a single dominant player to a more diversified one. While Pendle still holds the majority of the market share, new entrants such as Spark Savings are also expanding rapidly.

In the long run, yield protocols may become an important link connecting DeFi and institutional funds.

DEX user engagement has increased significantly, and the participating players have become increasingly diversified.

In 2025, DEXs continued to accelerate their efforts to catch up with CEXs (centralized exchanges) in terms of user experience and liquidity efficiency. The sector's total value added (TVL) decreased from $22.3 billion to $16.8 billion, a year-on-year decline of approximately 25%, with a peak of $26.6 billion during the year.

Driven by the speculative frenzy surrounding Memecoin and the popularity of ecosystems like Solana and Base, DEXs accounted for a staggering 21.71% of cryptocurrency spot trading in June.

In 2025, DEX user stickiness increased significantly. For eight consecutive months, the trading ratio of DEX to CEX remained above 15%, breaking the previous pattern of only briefly surging at the peak of a bull market.

According to Artemis data, spot trading volume on DEXs on Solana is projected to reach $1.7 trillion by 2025, accounting for 11.92% of the global spot market, surpassing Bybit, Coinbase, and Bitget, and second only to Binance. Since 2022, Solana's on-chain share has jumped from 1% to 12%, while Binance's market share has declined from 80% to 55%, indicating that spot trading activity is gradually migrating to on-chain.

In terms of market share, Uniswap continues to maintain its leading position in the field, especially in decentralized governance and value capture.

In September, the Uniswap Foundation registered Uniswap Governance as the Decentralized Unincorporated Nonprofit Association (DUNA) of Wyoming as the legal structure for protocol governance, naming the entity "DUNI". This move provides Uniswap with a veneer of compliant governance and paves the way for activating the protocol's fee mechanism.

Related reading: Uniswap's compliance breakthrough: How does DUNA pave the way for fee switching and token empowerment?

In December, Uniswap officially enabled protocol fees by passing the UNIFication governance proposal and burned 100 million UNI tokens.

Related reading: Uniswap launches a major proposal: enabling a fee switch and burn mechanism, but competitors call it a "strategic mistake".

Although Uniswap remains the leader in the field, the technology roadmap of DEXs has undergone a structural change from the traditional AMM (Automated Market Maker) to Prop AMM (Proprietary Automated Market Maker).

It's worth noting that HumidiFi, an emerging DEX on Solana, is reshaping trader behavior with its low-slippage dark pool model. HumidiFi contributes 36%-50% of the spot trading volume on the Solana network, and its daily SOL/USD trading volume has repeatedly surpassed that of CEX giants like Binance. Although HumidiFi's ultra-low fee of 0.001% has sparked widespread debate about its sustainability, the protocol's outstanding performance in MEV resistance, anti-front-running, and privacy enforcement has made it the preferred DEX for professional institutions and large whales.

In addition, cross-industry giants such as Opensea have also launched spot trading businesses in search of a second growth curve.

Related reading: Token trading becomes a new growth engine for OpenSea; can it successfully transform under the expectation of token issuance?

The diversification of players has further fueled the overall prosperity of the DEX sector. According to cryptodiffer data, in 2025, Meteora, Jupiter, and Uniswap ranked as the top three DeFi protocols by fees, all exceeding $1 billion.

Perp DEX challenges CEX: From one dominant player to a battle of rivals

If 2024 was the experimental period for Perp DEX, then 2025 will be its breakout year, when it begins to show signs of challenging CEXs. Leveraging customized Layer 1 and high-performance ZK-Rollup, on-chain derivatives have achieved a qualitative breakthrough in execution speed and trading depth.

In 2025, the open interest of contracts on the Perp DEX track exceeded $16 billion, and the trading volume as a percentage of CEX jumped from 6.34% to 17%.

Hyperliquid is a leader in the Perp DEX sector, supporting 200,000 TPS and sub-second settlement, with performance comparable to mainstream CEXs. Its annual trading volume has exploded from $617.5 billion to $3.55 trillion. The protocol's OI/Vol (open interest/volume) ratio has consistently remained high at around 2, indicating that its trading is primarily driven by genuine hedging and trend-following positions, rather than simple volume manipulation for mining.

Hyperliquid's success lies not only in its technology, but also in its "no VC, community-first" token economics model, which has earned it a huge trust premium in the current market environment where there is a general aversion to VC tokens.

However, Hyperliquid's market share has halved from 43% to 22%. This shows that the competitive landscape of the Perp DEX market is evolving from Hyperliquid's dominance to a situation where many other players are emerging.

Related reading: The battle between established and emerging DEXs: Hyperliquid faces pressure to unlock billions of dollars, while new platforms leverage incentives to attract traffic.

The main challenges come from two strong competitors: Aster, backed by the Binance ecosystem and adept at social sharing; and Lighter, which uses ZK proof technology and pioneered a zero-fee model. Together, they captured half of the market share in 2025, rapidly diverting retail investor funds.

Related reading: Aster's "Trojan Horse": How did it use BNB Chain to secretly advance and aim for the Hyperliquid throne?

Lighter's $675 million airdrop sparks controversy over distribution; the company faces post-coin launch user retention challenges.

Hyperliquid countered with institutional-grade features such as "portfolio margin". The Perp DEX battle is no longer just about who is faster, but a full-scale showdown of technological approaches, traffic generation strategies, and capital efficiency.

Related reading: Hyperliquid to launch portfolio margin: a killer feature or a weapon?

RWA has deeply penetrated the on-chain market, achieving large-scale expansion.

2025 marked a year in which the wall between on-chain markets and real-world assets was rapidly dismantled, enabling RWA to scale significantly. The market capitalization of tokenized assets (excluding stablecoins) surged from $5.6 billion to over $20 billion.

Against the backdrop of the full launch of the RWA narrative and the accelerated on-chaining of global assets, traditional giants such as the Swiss precious metals group MKS PAMP have also restarted or explored tokenized products, which also marks the deep convergence of on-chain finance and physical assets.

Related reading: Swiss gold giant MKS PAMP "returns," re-enters the gold tokenization arena.

Tokenized US Treasury bonds are becoming a conduit connecting traditional risk-free returns with on-chain strategies. BlackRock's BUIDL fund achieved textbook-perfect expansion in 2025, rapidly growing from $650 million to $1.75 billion, further solidifying its leading position in tokenized US Treasury bond products. BlackRock brings not only capital but also brand endorsement, enabling BUIDL tokens to be used as underlying collateral in protocols such as Aave and Euler, and allowing US Treasury yields to access the DeFi market through cross-chain distribution.

RWA may be becoming a counter-cyclical tool. When the crypto market corrects in March 2025 due to tariff policies, the tokenized US Treasury market actually adds $1 billion in market capitalization within a month, an increase of about 33%.

A similar situation occurred again in November 2025. Tokenized gold and silver products saw their market capitalization surpass $3.5 billion, driven by macroeconomic factors such as rising precious metal prices and geopolitical instability, reflecting the demand and trend of funds seeking safe havens on-chain.

Related reading: Following the surge in gold and silver prices, a commodity trading boom has emerged on the blockchain.

With the implementation of regulations in the stablecoin sector, a dual evolution in scale and landscape is underway.

The stablecoin sector is forging ahead amidst a struggle between compliance and innovation. In the 2025 DeFi landscape, stablecoins have evolved into a monetary foundation layer connecting payments, transactions, and collateral. The maturity of this sector is primarily reflected in the implementation of compliance and the innovation of its models.

2025 marks a turning point for the global stablecoin regulatory framework, moving from theory to practice. With the advancement of the U.S. GENIUS Act, a federal-level stablecoin framework is beginning to take shape, allowing traditional banks such as JPMorgan Chase and Citigroup to participate more deeply in stablecoin issuance and reserve management.

Related reading: US banks jointly resist the Genius Act; stablecoin shockwaves shake traditional giants.

The full implementation of the European Crypto Asset Markets Regulation (MiCA), which mandates that Crypto Asset Service Providers (CASPs) switch to compliant stablecoins, has led to a significant liquidity rotation in the European market.

Related reading: USDT exits the market, EURC fills the gap, and the euro stablecoin surges by over 170% against the trend.

Regulatory transparency has directly translated into entry for institutions. Stripe acquired Bridge and integrated the USD stablecoin USDB; PayPal issued PYUSD; and Klarna launched KlarnaUSD. A DeFiLlama report indicates that the settlement volume of regulated stablecoins will exceed $50 trillion by 2025, and its monthly processing volume has surpassed Visa and PayPal for several months, demonstrating the superiority of blockchain as a payment infrastructure.

Stablecoins, as the lifeblood of DeFi, underwent a dual evolution in scale and structure in 2025. Their total market capitalization once climbed to $300 billion, while the competitive landscape presented an "internal innovation under a duopoly."

USDT maintains its absolute lead with a market share of over 60%, while USDC ranks second due to its transparency and compliance.

The rising expectation of interest rate cuts has fueled strong demand for on-chain interest-bearing assets, with users' preference for yield-generating stablecoins surpassing that for traditional payment stablecoins. A DeFiLlama report indicates that the market size of yield-generating stablecoins is projected to surge from $9.5 billion to over $20 billion by 2025, representing a year-on-year growth of over 110%.

Ethena's synthetic dollar, USDe, is poised for explosive growth in 2025. The protocol does not rely on fiat currency reserves but achieves delta neutrality by establishing an equal number of short perpetual contracts on interest-bearing assets such as ETH.

Thanks to high-leverage cyclical trading on Aave and Pendle, USDe's supply once approached $15 billion. However, the flash crash on October 11 caused USDe to de-peg to $0.65 on the Binance spot market. This aftershock caused USDe's TVL to plummet to $6.3 billion, a 58% drop from its all-time high.

Related reading: The Crypto Avalanche: A Triple Contagion Chain of Market Crash, How Can the Industry Rebuild a More Robust Foundation?

Subsequently, Ethena launched a white-label platform in an attempt to create a second growth engine.

Related reading: Ethena after the decoupling controversy: TVL halved, ecosystem setbacks, how to start a second growth curve?

To make matters worse, in November, Stream and Elixir experienced a collapse when their yield-generating stablecoins, xSUD and deUSD, were wiped out due to the liquidation of external fund managers. This event dealt a heavy blow to the market and also sounded an alarm: even seemingly safe stablecoins must be wary of their underlying complex strategies, and systemic risks have migrated from the code layer to the counterparty layer.

Related Reading: DeFi Reflections: Four Stablecoins Gone to Zero in a Week, Firmly Saying NO to "Backroom Deals"

In contrast, MakerDAO has experienced steady growth since rebranding as Sky. Although the expansion of the protocol stablecoin USDS once encountered a bottleneck, it has provided stable and sustainable local currency yields by integrating RWA assets and directly integrating government bond yields, which has propelled USDS's market capitalization to surpass USDe and become the third largest in the sector.

The evolution of these seven sub-markets has meant that the DeFi market in 2025 was no longer an isolated experiment. It demonstrated powerful financial engineering capabilities, turning staking, lending, yields, and even government bonds into programmable Lego bricks. However, it also could not escape the greed inherent in human nature: governance conflicts, leverage collapses, opaque operations... The "10/11 flash crash" served as a mirror, reflecting the cracks behind the prosperity.

However, the crash did not lead to a systemic collapse. Leading protocols demonstrated resilience during the storm, and real-world applications are emerging—perhaps this is the price of DeFi's coming-of-age ceremony.