In the ever-evolving landscape of decentralized finance (DeFi), a transformation is quietly taking root. Unlike the previous DeFi boom, characterized by sky-high yields and rampant speculation, this new wave is driven by the sector’s maturation into a robust financial backbone, bolstered by institutional participation and sophisticated risk management. According to a report released Wednesday by analytics firm Artemis and on-chain yield platform Vaults.fyi, the total value locked (TVL) in leading DeFi lending protocols—such as Aave, Euler, Spark, and Morpho—has skyrocketed, now nearing $60 billion, marking a 60% increase over the past year.
The DeFi Mullet Effect
Here’s where it gets interesting: user-facing applications are starting to embed DeFi infrastructure in their backends to seamlessly offer yields or loans, a trend whimsically dubbed the “DeFi mullet”—fintech up front, DeFi in the back. Take Coinbase, for instance. It enables users to borrow against their Bitcoin holdings, leveraging Morpho’s DeFi infrastructure under the hood. This integration has already facilitated over $300 million in loans this month alone.
Meanwhile, Bitget Wallet’s tie-up with Aave offers a 5% yield on USDC and USDT holdings across various chains—all without users having to leave the app. Even PayPal is jumping on the bandwagon, offering yields of nearly 3.7% on its PYUSD stablecoin to PayPal and Venmo users, although without the DeFi layer. The report hints that other fintech giants like Robinhood and Revolut might soon follow suit, potentially offering stablecoin credit lines and asset-backed loans through DeFi markets, thereby unlocking new revenue streams. This follows a pattern of institutional adoption, which we detailed in our analysis of corporate treasury investments.
Tokenized Real-World Assets
DeFi’s expansion isn’t just confined to digital assets. There’s a burgeoning interest in tokenized versions of traditional financial instruments, known as real-world assets (RWAs). These include U.S. Treasuries and credit funds, which can serve as collateral, generate yields, or be woven into more intricate investment strategies. An example? Pendle, a protocol that allows users to split yield streams from principal, now commands over $4 billion in TVL, much of it in tokenized stablecoin products.
Moreover, Ethena’s sUSDe and similar yield-bearing tokens offer returns exceeding 8% through strategies like cash-and-carry trades, all while abstracting operational complexities for users. This integration of traditional finance with DeFi’s innovative practices raises questions about how these platforms will navigate regulatory landscapes, especially as they continue to blur the lines between conventional and decentralized finance. For a deeper dive into the regulatory implications, see our coverage of the SEC’s latest guidance.
Rise of On-Chain Asset Managers
Another pivotal, albeit less visible, trend is the emergence of crypto-native asset managers. Companies like Gauntlet, Re7, and Steakhouse Financial are taking on roles akin to traditional asset managers. They allocate capital across DeFi ecosystems using meticulously managed strategies, participating in protocol governance, fine-tuning risk parameters, and deploying capital across structured yield products, tokenized RWAs, and modular lending markets. According to the report, the capital managed by these entities has ballooned from $1 billion in January to over $4 billion today.
Looking Ahead
The DeFi sector appears to be on a solid trajectory, but it’s not without its challenges. As institutional players increasingly join the fray, the need for robust regulatory frameworks and enhanced security measures becomes more pressing. The integration of DeFi into mainstream financial services is a double-edged sword—it offers unprecedented accessibility and innovation but also invites scrutiny and potential regulatory hurdles.
As we look forward to the rest of 2025, the critical question remains: can DeFi sustain its growth while navigating the complexities of global financial regulations? The answers will likely shape the next phase of DeFi’s evolution and its role in the broader financial ecosystem.
Source
This article is based on: Crypto Lenders Hold Nearly $60B of Assets as New Wave of DeFi Adoption Sweeps In: Report
Further Reading
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Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
