Intro
The last few years have been rough for the vast majority of DeFi protocols. However, with recent peaked interest in crypto, we may be at the cusp of a new era of DeFi adoption.
So, which DeFi protocols survived the crypto bear market? What are some of the new, promising projects that can redefine this space? And what can we expect from DeFi in 2025 and beyond? You will find answers to these questions and more in this post.
The Bear Market
Let’s start by rewinding to the bear market. Spanning from late 2021 to 2024, this phase was characterised by significant downturns in cryptocurrency prices, investor scepticism, and regulatory uncertainties. It was during these trying times that DeFi’s foundations were tested and strengthened.
During the downtrend, the total value locked across all DeFi protocols plummeted from $180b all the way down to $30b, a massive drop of almost 85%.
Ethereum, the backbone of DeFi, faced its own set of challenges. While remaining the most popular and the most decentralised, the network struggled with scalability issues. The community eagerly awaited The Merge and broader adoption of Layer 2 solutions with the promise of greater scalability and efficiency.
Despite launching in the depths of the bear market, emerging L2 platforms such as Arbitrum and Optimism immediately began offering lower transaction costs and improving the overall throughput of the Ethereum ecosystem. These innovations were not just a stopgap but a preview into a future where Ethereum could scale efficiently to meet increasing demand.
The growing adoption of L2s posed its own challenges for the Ethereum ecosystem, mainly the fragmentation of liquidity and lack of composability between different scaling solutions.
Meanwhile, other ecosystems presented a different approach. Solana, for instance, known for its high-speed and low transaction cost, doubled down on its monolithic design narrative.
This started attracting a different set of developers wanting to build cheaper and more composable applications.
Solana gained significant market share despite its ecosystem being hit particularly hard by the bear market and the collapse of FTX.
The bear market also revealed the shortcomings of multiple centralised players. This ranged from CeFi lending platforms such as BlockFi and Celsius going under to centralised exchanges like Coinbase, Binance, and Kraken struggling with regulatory pressure.
It’s worth remembering that most DeFi protocols worked exactly as expected during the same period. Users could trade on DEXes, lend and borrow on DeFi lending platforms, use liquid staking protocols, and more without relying on centralised players.
This situation showed us that despite its challenges, DeFi offers a unique value proposition driven by its transparency, auditability, and decentralisation.
The previous bear market was more than a period of decline; it was a period of evolution, setting the stage for the next chapter of DeFi.
DeFi Renaissance
Emerging from the bear market, one thing became obvious. Despite the vast majority of already established DeFi protocols remaining the leaders in their own categories, a set of new protocols took the lead in a new market sector or tried to challenge the incumbents.
Ethereum L1
In the Ethereum ecosystem, Uniswap further engrained itself as a go-to decentralised exchange, capturing most of DeFi’s volume. The Uniswap team announced a new version of the protocol, Uniswap V4, in June 2023. The new version introduces a powerful new tool for developers called hooks that provides a way to inject custom logic right into a liquidity pool’s lifecycle. Uniswap V4 is being developed in the open with the community, and it’s expected to launch soon.
Aave, the biggest lending protocol in DeFi, has surpassed $30b in net deposits across 13 different networks.
The team behind Aave also introduced a new decentralised stablecoin called GHO. Users can borrow the GHO stablecoin on Aave at a cheaper rate than the other more established stablecoins, such as USDT or USDC.
Speaking about stablecoins, another established DeFi protocol, Maker iterated on its design and started introducing innovative types of collateral, including US Treasury bills. This contributed to the emergence of another narrative in the DeFi space known as RWA, which stands for real-world assets. Maker has been recently rebranded to Sky.
In the derivatives space, Synthetix introduced v3, completely overhauling the protocol from scratch. With v3, Synthetix became a layer of liquidity on which any derivatives market can be built.
Outside the established DeFi protocols, a new wave of players joined the emerging staking sector.
Lido, with over $30b in staked tokens, established itself as the biggest liquid staking protocol. However, Lido has recently seen a lot of competition from a plethora of newer protocols, including RocketPool, mETH and Coinbase ETH.
Another adjacent sector, called restaking, has also emerged outside of staking. In short, restaking allows for reusing Ethereum validators to secure a completely different network or protocol.
EigenLayer, a leader in this category, has accumulated over $14b of TVL.
This, in turn, created a liquid restaking market. Ether.fi, a key player in this category, amassed over $8b in liquid restaked ETH.
Ethena, Morpho, and Pendle are other protocols that rose to prominence during the bear market. Each one accumulated over $3b in TVL and became leaders in their respective categories.
Ethena allows users to create synthetic dollars with internet-native yield. Morpho specialises in creating efficient lending primitives with permissionless and isolated market creation. Pendle allows users to benefit from fixed rather than fluctuating yield in DeFi.
Ethereum L2s
Staying in the broader Ethereum space, we saw a lot of DeFi development on L2s, which de facto became their own ecosystems for new DeFi experiments.
Arbitrum, with over $18b in TVL, positioned itself as a go-to place for DeFi activities.
GMX, a decentralised spot and perpetual exchange on Arbitrum, stands out as one of the new protocols that gained traction during the bear market.
Base, an L2 built on top of the OP Stack, has also seen a big increase in DeFi activities. The TVL on Base has recently crossed the $10b mark, making it the second biggest L2 by TVL after Arbitrum.
On Base, Aerodrome became the biggest DEX despite facing competition from Uniswap.
Other L2s such as OP Mainnet, Blast, Linea, ZKSync, Starknet and Scroll also continued their development, trying to find their niche and compete for users’ and developers’ attention.
Solana
Outside of the Ethereum ecosystem, DeFi protocols on other L1s also went through a defining period.
On Solana, DEXes and DEX aggregators such as Orca, Raydium, Jupiter and Drift emerged from the depths of the bear market. They started handling more and more volume – fuelled by the memecoin mania they even surpassed DEXes on Ethereum.
Pump.fun established itself as a go-to platform for launching new memecoins and, despite recent controversies, contributed to a large volume of transactions on Solana.
In the lending space, Camino started rapidly growing its TVL, recently reaching over $2b.
New innovative protocols, like Jito, emerged, combining liquid staking with MEV rewards.
One of the most pivotal moments for the Solana ecosystem was the JITO airdrop, which ignited significant interest and attracted substantial capital, especially from speculators anticipating future profitable airdrops. It is often compared to the UNI airdrop invigorating Ethereum’s DeFi ecosystem in 2021.
There were also DeFi protocols that decided to launch their own chains. This was particularly visible in the resource-demanding trading space, with exchanges such as dYdX and Hyperliquid being the prime examples.
As we reflect on all of these developments, it’s clear that this period was not just about recovery; it was a period revolutionising the way we think about decentralised finance. A true DeFi Renaissance.
At the time of this post, the total TVL across all DeFi has rebounded to approximately $120 billion. While still below the all-time high of $180 billion, this marks a significant recovery from the $30 billion low, highlighting the resurgence of the DeFi space.
DeFi in 2025 And Beyond
Now, as we head into 2025, let’s dive deeper into upcoming innovations.
In the Ethereum ecosystem, we expect DeFi activities to continue moving into L2s.
These new networks will continue to play a pivotal role, enhancing Ethereum’s capabilities and allowing for greater transaction throughput.
Driven by the additional data availability space, we can expect to see even more L2s launch in the future. The competition in the L2 space is fierce, and projects will try to differentiate themselves in various ways.
One way is to offer a unique execution environment. This can be driven by execution speed, support for a particular programming language, or a Virtual Machine.
A good example is MegaETH, an L2 that focuses on execution speed and wants to challenge even the fastest L1s.
Unichain, is a new DeFi-native L2, optimized to be the home for liquidity across chains being built by the Uniswap team.
Eclipse is Ethereum’s L2 that offers a Solana Virtual Machine as its execution environment.
Stylus is an upgrade to Arbitrum that allows developers to write smart contracts in Rust, C, or C++ without losing EVM compatibility.
Another way to differentiate from the pack is to offer a better user experience. One way of achieving this is by leveraging account abstraction, which can dramatically simplify interactions with DeFi protocols by abstracting away things like gas fees, private key management, and more. Wallets such as ArgentX built on Starknet are among the leaders in this category.
Yet another way to differentiate from others is to iterate on the economics of a given L2. We can already see upcoming L2s offering yield on ETH and stablecoins. Blast, launched by the team behind Blur, is a good example.
Outside of the Ethereum ecosystem, Solana, with its high-speed and low-cost transactions, will carve out its own niche in the DeFi space.
One of the big upcoming events in the Solana ecosystem is the launch of Firedancer, a new validator client built by jump_. The aim is to increase Solana’s throughput, resilience, and efficiency.
Some innovative projects will also come to Solana in 2025. NeonEVM, which offers a fully Ethereum-compatible environment on Solana, is a good example.
Similar to the competition in the Ethereum L2 space, we can already see a plethora of L1s coming to fruition.
Projects like Aptos, SUI and SEI all compete with Solana for being the fastest blockchain.
We also have some highly anticipated new players joining the competition, such as Monad, which specialises in parallel execution, and Berachain, which uses Proof-of-Liquidity as a consensus mechanism.
It will also be interesting to see what happens in the broader Bitcoin ecosystem. Despite initial controversies, BRC20s and ordinals sparked fresh interest in Bitcoin outside its prime store-of-value narrative.
Tokenisation is another big area for DeFi yet to conquer. This space, although discussed pretty much since the inception of the crypto industry, has so far been hindered by regulatory uncertainties.
It’s hard to predict exactly when, but I’d expect to see the vast majority of assets in the world eventually being tokenised and tradeable in DeFi. This would include stocks, bonds, commodities, real estate and other financial assets.
Finally, DeFi innovations are unlikely to slow down. We can expect continued advancements in areas such as enhancing the speed and reliability of DeFi infrastructure, improving user experience through better wallet designs and simplified cross-chain transactions, and exploring crossovers between DeFi, AI, and gaming.
Summary
As we venture into 2025, the DeFi landscape presents a remarkable picture of resilience, innovation, and growth. After the bear market and being stifled by unclear regulation, DeFi has not only recovered but has also paved new pathways for financial technology.
Key protocols such as Uniswap, Aave, and Sky have endured and evolved, introducing advanced features and signalling robust growth in the DeFi ecosystem.
The rise of L2s, with projects like Arbitrum, Base and OP Mainnet, marks another frontier in scalability and user adoption.
Outside of Ethereum, Solana has risen in prominence. Other new innovative L1s compete for user attention, trying to increase their market share.
In conclusion, as DeFi continues to mature and develop, it stands at the forefront of redefining the financial landscape, bridging gaps and creating a more interconnected and accessible financial ecosystem for years to come.
The journey of DeFi remains an exciting and promising one, full of opportunities and innovations waiting to be explored.
It’s going to be fascinating to continue watching how this journey unfolds.
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