Three Trends in DeFi | Pantera

Three Trends in DeFi

January 13, 2025 | Mason Nystrom

Consumer DeFi 

 

As interest rates come down, DeFi yields start to become more attractive. Increased volatility brings more users, yield, and leverage. Combined with more sustainable yields from RWAs, it suddenly becomes much easier to build consumer-grade crypto financial apps.

 

When we merge these macro trends with innovations around chain abstraction, smart accounts/wallets, and the general shift to mobile, there’s a clear opportunity to build consumer-grade DeFi experiences.

 

Some of the most successful crypto financial apps over the past few years have been at the intersection of improved UX and speculation. 

 

– Trading bots (e.g., Telegram) – offer users trading within their messaging and social experience 

– Better crypto wallets (e.g., Phantom) – improve the existing wallet experience and offer a better experience across multiple chains 

– New terminals, portfolio trackers, and discovery layers (e.g., Photon, Azura, Dexscreener, etc.) – offer advance features for power users and give users access to DeFi in a CeFi like interface

– Robinhood for memecoins (e.g., Vector, Moonshot, Hype, etc.)  – to date crypto has mostly favored desktop, but mobile-first experiences will dominate future trading apps 

– Token launchpads – (e.g., Pump, Virtuals, etc.) – offer access to permissionless token creation for anyone, regardless of technical capabilities. 

 

As more consumer DeFi applications launch, they’ll look like fintech apps with the standard UX that users have come to appreciate, but they’ll aggregate and provide an opinionated experience of DeFi protocols on the backend. These apps will be opinionated about the discovery experience, the products offered (e.g., types of yield), appeal to power users (e.g., offer convenient features like multi-collateral leverage), and generally abstract the complexities of interacting onchain. 

 

The RWA Flywheel: Endogenous vs Exogenous Growth 

 

High interest rates since 2022 have supported a massive influx in real-world assets (RWAs) onchain. But now, the transition from offchain finance to onchain finance is accelerating as large asset managers like BlackRock realize that issuing RWAs onchain brings meaningful benefits including: programmable financial assets, lower cost structure for issuing and maintaining assets, and greater asset accessibility. These benefits, like stablecoins, are a 10x improvement over the current financial landscape. 

 

According to RWA.xzy and DefiLlama, RWAs account for 21-22% of assets on Ethereum. These RWAs are mostly in the form of grade-A, American Eagle-backed, US Treasury bills. The growth has largely been driven by high rates that make it easy for investors to be long the Fed over DeFi. And while the macro winds are shifting to make T-bills less appealing, the Trojan horse of onchain asset tokenization has entered the walls of Wall St, opening the floodgates for more RWAs to come onchain. 

 

As more traditional assets move onchain, this will kick off a compounding flywheel effect, slowly merging and replacing legacy financial rails with DeFi protocols.

 

 

Why does this matter? The growth of crypto comes down to exogenous capital vs endogenous capital. 

 

Most of DeFi is endogenous – largely circular within the DeFi ecosystem – and capable of growing on its own. However, it has historically been quite reflexive: it goes up, it goes down, and then back around. But over time, new primitives have steadily expanded the DeFi pie. 

 

Onchain lending via Maker, Compound, and Aave expanded the use of crypto-native collateral as leverage.

 

Decentralized exchanges, in particular AMMs, expanded the universe of tradable tokens and jumpstarted onchain liquidity. But DeFi can only grow its own market to a certain extent. Although endogenous capital (e.g., the speculation of onchain assets) has driven the crypto markets to a robust asset class, exogenous capital – capital that exists outside of the onchain economy – is necessary for the next wave of DeFi growth.

 

RWAs represent a massive amount of latent exogenous capital. RWAs – commodities, stocks, private credit, FX, etc. – present the greatest opportunity to expand DeFi beyond the circular siphoning of capital from the pockets of retail to the loins of traders. Just as the stablecoin market has required growth via more exogenous uses beyond onchain financial speculation, so too will other DeFi activities (e.g., trading, lending, etc.). 

 

The future for DeFi is for all financial activity to move onto blockchains. DeFi will continue to see two parallel expansions: the similar endogenous expansion via more onchain native activity, and exogenous expansion from real-world assets moving onchain.

 

The Platformization of DeFi

 

“Platforms are powerful because they facilitate a relationship
between third-party suppliers and end users.”

– Ben Thompson

 

Crypto protocols are about to have their platform moment. 

 

DeFi applications are all moving towards the same business model, evolving from standalone application-protocols to fully-fledged platform-protocols. 

 

But how exactly are these DeFi apps becoming platforms? Today, most DeFi protocols are relatively rigid, offering a one-size-fits-all service for applications that want to interact with these protocols.

 

 

In many instances, apps simply pay the protocol for its core asset, such as liquidity, as a standard user would, rather than having the ability to build differentiated experiences or programmed logic directly within the protocol.

 

Most platforms start this way, solving a core problem for a single use case. Stripe initially provided payment APIs that allowed individual businesses, like online stores, to accept payments on their websites, but it only worked for single businesses. Once Stripe launched Stripe Connect, it enabled businesses to process payments on behalf of multiple sellers or service providers, making Stripe the platform that it is today. It later offered better ways for developers to build more integrations, expanding its network effects. Similarly, DeFi platforms like Uniswap are now moving from standalone apps (e.g., DEX) that facilitate swapping to building a DeFi platform that enables any developer or app to create their own DEX on top of Uniswap’s liquidity. 

 

The key enabler of DeFi’s platform transition is a shift in business model, with the evolution of singleton liquidity primitives. 

 

Singleton liquidity primitives – Uniswap, Morpho, Fluid – aggregate liquidity for a DeFi protocol allowing access by two modularized pieces of a value chain (e.g., liquidity providers and applications/users). The liquidity provider experience becomes more streamlined, allocating capital to a single protocol rather than protocol of differentiated pools or isolated vaults. For applications, they can now rent liquidity from the DeFi platform rather than simply aggregating the core service (e.g., DEX, lending, etc.).

 

 

Some examples of the emerging DeFi platform protocols:

 

Uniswap V4 is pushing towards a singleton liquidity model whereby applications (e.g., hooks) can rent liquidity from Uniswap’s V4 protocol rather than simply routing liquidity through the protocol as with Uniswap V2 and V3.

 

 

Morpho has moved towards a similar platform model where MorphoBlue acts as the core liquidity primitive layer that can be permissionlessly accessed by vaults created through MetaMorpho, a protocol built on top of the liquidity primitive MorphoBlue. 

 

 

Similarly, Instadapp’s Fluid protocol creates a shared liquidity layer that’s leveraged by its lending and DEX protocols. 

 

 

While there are differences between these platforms, the common throughline is that emerging DeFi platforms share a similar model, building singleton liquidity contract layers with more modular protocols on top that enable greater application flexibility and customization. 

 

The evolution of DeFi protocols from standalone applications to fully-fledged platforms marks a maturation of the onchain economy. By adopting singleton liquidity primitives and modular architectures, protocols like Uniswap, Morpho, and Fluid (formerly Instadapp) are unlocking new levels of flexibility and innovation. This transition mirrors how traditional platforms, like Stripe, empowered third-party developers to build on top of core services, driving greater network effects and value creation. As DeFi enters its platform era, the ability to facilitate customizable, composable financial applications will become a defining feature, expanding the market of existing DeFi protocols and enabling a new wave of apps to build on top of these DeFi platforms. 

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