Crypto Evolution 02 | OKX Ventures & Multicoin Capital & 1kx: Where is DeFi Heading?
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Crypto Evolution 02 | OKX Ventures & Multicoin Capital & 1kx: Where is DeFi Heading?
Cycles and narratives have always been central themes in the global crypto market. In the past, the industry largely relied on Bitcoin halving events to gauge market cycles and identify major narrative trends. However, following the approval of Bitcoin and Ethereum spot ETFs, the crypto market has become highly correlated with global financial markets, and the variables influencing crypto market movements are increasing.
Navigating Web3 tides with focused insightsAgainst the backdrop of soaring chaos metrics, perceiving cyclical patterns more clearly and uncovering future narrative trends has become critically important. As hunters of innovative narratives, investment firms have consistently maintained a forward-looking perspective. In light of this, OKX has specially launched the column "The Evolution of Crypto," inviting leading global crypto investment institutions to systematically share insights on current market cycles, emerging narrative directions, and key trending sectors—aiming to spark meaningful discussion.
Below is the second installment, jointly contributed by OKX Ventures, Multicoin Capital, and 1kx, focusing on topics such as “DeFi: The Present, Past, and Future.” We hope their insights into the DeFi landscape offer you valuable inspiration.
About OKX Ventures
OKX Ventures is the investment arm of OKX, a leading cryptocurrency exchange and Web3 technology company, with an initial capital commitment of $100 million. It focuses on identifying top blockchain projects globally, supporting cutting-edge blockchain innovation, promoting healthy industry development, and investing in long-term structural value. Through its commitment to entrepreneurs advancing the blockchain ecosystem, OKX Ventures helps build innovative companies and brings global resources and historical expertise to blockchain projects.
About Multicoin Capital
Multicoin Capital is a research-driven investment firm focused on backing cryptocurrencies, tokens, and blockchain companies capable of reshaping trillion-dollar industries. We manage both hedge funds and multiple venture funds, spanning investments in public and private markets.
About 1kx
1kx is a crypto investment firm focused on ecosystem growth. We are dedicated to exploring the art and science of network building, aiming to realize a decentralized ideal future. We believe community-driven software empowers token networks with nearly infinite potential, ultimately influencing the global economy and society. At 1kx, we support exceptional founders launching token networks. With unmatched community engagement, we act as hands-on advisors in token model creation, design, and iteration, helping the most promising ideas in Web3 find paths toward growth and economic sustainability.
I. The Past and Present of DeFi
1. Looking back, what has been the core driver behind DeFi’s ability to fuel crypto market growth?
OKX Ventures (Esme Zheng): DeFi's rise traces back to 2018, when Ethereum founder Vitalik Buterin suggested finance would be the first major application area for blockchain. Between 2018 and 2020, DeFi protocols evolved along three primary directions: decentralized stablecoins, spot trading, and lending.
First, decentralized stablecoins like Maker’s DAI served as native currencies and mediums of exchange within the on-chain economy, laying the foundational bedrock for the DeFi ecosystem. Then came DEX protocols such as Uniswap and Bancor, which introduced non-custodial, peer-to-peer automated market maker (AMM) mechanisms, pioneering a new era where users could trade without centralized intermediaries while retaining full control over their funds. The emergence of DEXs not only opened new avenues for cross-border transactions but also paved the way for novel financial instruments such as synthetic assets and stablecoins.
As demand for DeFi grew, the number of protocols expanded exponentially—some offering token trading capabilities, others enabling borrowing and staking. By this stage, the three core primitives of traditional finance had been successfully replicated in a decentralized manner. Although AMMs widely adopted decentralized liquidity pools, and LP tokens triggered a cascade of DeFi innovations, insufficient liquidity remained a constraint: without adequate liquidity, DEX token swaps suffered from high slippage costs during large trades. This need gave rise to liquidity incentive mechanisms—yield farming and liquidity mining became essential tools for new protocols to attract capital, catalyzing the explosion of "DeFi Summer."
After 2020, DeFi Layer 2 (L2) began gaining traction, as mature financial modules from traditional finance were brought into the decentralized world—retaining similar financial principles but emphasizing “Code is Law,” trustlessness, and permissionless access. This phase saw the emergence of derivative platforms like dYdX, futures contracts, options, and structured finance products. Meanwhile, liquid staking protocols such as Lido significantly increased Ethereum’s staking rate. As on-chain staked value grew, we further supported SSV’s DVT technology, delivering more decentralized and secure solutions at the node operator level. Later, with the maturation of Layer 2 technologies and the launch of numerous rollups, alongside developments in ecosystems like Bitcoin, the blockchain world faced increasing liquidity fragmentation. Demand surged for secure, scalable cross-chain asset solutions. In response, we invested in Orbiter and Zeus to advance cross-chain DeFi.
If before 2022 people were assembling financial Lego blocks on this previously barren blockchain frontier, building frameworks for global financial services, then from 2022 onward, the biggest shift in DeFi has been its deepening connection with the real world. Traditional asset managers like BlackRock have begun entering DeFi, launching tokenized asset funds on Ethereum that deliver stable on-chain yields. Simultaneously, discussions around on-chain economic security have intensified. Projects like Eigenlayer and Babylon aim to address blockchain security and economic efficiency, while ecosystem players such as StakeStone and EtherFi have emerged, enhancing the safety and transparency of on-chain financial products while offering users greater choice and higher return potential.
The prosperity of DeFi stems from the pursuit of Open Finance—disintermediation reduces transaction costs. Smart contracts and blockchain technology have enhanced transaction speed and transparency, improved market liquidity, and made significant strides toward financial inclusion, enabling broader participation in and benefit from financial markets.
Multicoin (Kyle Samani): OKX Ventures provided a thorough overview, especially regarding the evolution of DeFi. Here, we’ll focus on several key reasons why DeFi has thrived—because in recent years, it has offered unique value propositions unavailable in CeFi:
1. Enables trading, lending, and other operations while maintaining self-custody of assets.
2. Provides early access to long-tail assets before they’re listed on CeFi exchanges.
3. Enables NFT trading—where CeFi platforms have almost no NFT trading volume.
1kx (Mikey 0x): The first use case driving DeFi adoption was spot trading. Before 2020, MakerDAO and Uniswap already met the core needs for on-chain token buying and selling. Uniswap, in particular, created a new type of user—the passive market maker. Especially with Uniswap V2, no liquidity provider held pricing advantages—all participants supplied prices along the same curve. By serving new tokens, DeFi boosted trading volumes and capitalized on regulatory arbitrage.
The second wave involved yield-optimization protocols. In 2020, Yearn Finance led the DeFi yield farming era, allowing users to earn passive income via token inflation. Inflows of these native tokens stemmed from users seeking yield through staking, driving up token prices, attracting attention, and creating a flywheel effect. Subsequent “DeFi 2.0” projects amplified price speculation, promising even higher returns and drawing massive liquidity.
A third reason for DeFi’s rapid rise in recent years has been advances in on-chain trading mechanisms, particularly Uniswap V3 and on-chain order books. For instance, CowSwap introduced a model prioritizing user interests. Uniswap V3 moved closer to traditional order books, enabling liquidity providers to customize price ranges and concentrate liquidity—resulting in better on-chain price execution and greater appeal. Perpetual trading platforms like dYdX and Hyperliquid improved user interfaces and experiences while pushing aggressively toward full decentralization. Another notable protocol is GMX, which pioneered a pooled perpetual contract model allowing passive liquidity providers to earn from user trading fees and counterparty profits. Overall, L2 advancements drove user growth. Today, Uniswap’s average transaction size has dropped from five-digit figures in DeFi’s early days to under $100—clearly reflecting mass retail adoption.
2. What are the main challenges facing the DeFi sector?
OKX Ventures (Esme): We believe DeFi currently faces three primary challenges:
First, infrastructure still lags behind traditional finance. While DeFi’s market and user scale are relatively mature compared to other crypto sectors, its infrastructure remains underdeveloped relative to traditional finance. For example, traditional financial systems offer widespread infrastructure—bank branches, ATMs, extensive financial networks—that deliver convenient services. In contrast, crypto payments remain inconvenient and inefficient. Therefore, infrastructure improving user experience and lowering barriers for first-time users—such as account abstraction and smart account integration—is critical.
Second, liquidity fragmentation. Currently, on-chain assets and trading volumes are scattered across different ecosystems. Even within a single ecosystem, liquidity is concentrated in pools of dominant protocols. This fragmentation increases on-chain transaction costs, slows trading speeds, reduces leverage opportunities, and degrades user experience. Although some highly interoperable and composable protocols can amplify liquidity efficiency, differing financial protocol standards (e.g., risk management) and security levels inadvertently increase systemic risks across the DeFi ecosystem.
Third, inefficient protocol governance. Most DeFi protocols rely on manual, static methods to manage risk parameters. Smart contracts require complex trusted infrastructure to process external data, and a single trusted API cannot guarantee data accuracy. Thus, many protocols struggle to decouple logic and dependencies from base primitives, aiming to build stronger advanced service markets while introducing dynamic governance, minimizing attack surfaces, and effectively consolidating liquidity.
Multicoin (Kyle Samani): The DeFi 1.0 era focused on defining and building basic financial primitives—spot trading, lending, cross-chain bridges—now largely mature, laying the foundation for more complex DeFi products. We believe the next major opportunity lies in derivatives—perpetuals and options. The key challenge for derivatives is performance during market volatility, as DeFi derivative systems are extremely complex and technically demanding. However, DeFi is gradually gaining the capability to reliably support on-chain derivatives trading. A prime example is Drift, natively built on Solana—a high-performance chain specifically designed to host DeFi applications like perpetual contracts.
1kx (Mikey 0x): There are exciting developments across spot trading, perpetuals, lending, policy frameworks, MEV (Maximal Extractable Value), and payments in DeFi.
The prevailing trend today is vertical integration. Perpetual platforms are not only launching memecoin launchpads but also building entire chains or issuing stablecoins. The goal is user acquisition—DeFi projects forming sticky ecosystems will gain strong moats. Infrastructure progress supports this trend: Fastlane, Sorella, and Semantic are shifting MEV from technically sophisticated actors to upstream entities like protocols, users, or liquidity providers.
In core DeFi primitives, the “DeFi 3.0” wave is emerging, targeting greater composability and efficiency. Morpho improves lending market structure by introducing custodians; Euler prepares v2 to serve diverse needs; Uniswap v4 introduces greater flexibility in liquidity provision and plans to launch long-tail applications like options, perpetuals, and prediction markets.
In our view, the main challenge remains delivering a user experience comparable to centralized exchanges—especially in attracting users to DeFi. DEX spot trading volume remains low, and even lower in perpetuals. Since all actions require blockchain interaction, this challenge is amplified. Account abstraction (ERC-4337) and smart accounts powered by projects like Safe* and Rhinestone* are moving toward solving these issues.
II. DeFi “Ecosystems” in the New Cycle
1. What role will DeFi play going forward?
OKX Ventures (Esme): Most surviving DeFi projects today exhibit greater stability. Though lacking short-term speculative narratives common in other sectors, their token prices correlate more strongly with fundamentals and revenue—revealing a blue-chip character. This cycle centers on ETH and BTC restaking and competition among new L1s and L2s for limited existing users. DeFi’s current phase is shaped by major trends: protocols are shifting from monolithic structures to smaller, finer-grained primitives. Developers in this phase will benefit from new, distinct ecosystems.
During DeFi Summer in 2020, Ethereum dominated the space, accounting for over 95% of total TVL across all networks—now down to about 60%. Nearly one-third of total TVL is now held by competing L1s and various L2 networks. Bitcoin’s share of total TVL has risen to nearly 1%. Token standards like Ordinals and Runes have introduced DEXs on Bitcoin, creating new markets for Bitcoin NFTs and memecoins.
Yield has become the new normal. Two latest DeFi narratives—native yield and restaking—are especially popular. In the first half of 2024, EigenLayer’s TVL surged from $1.3 billion to $20 billion, making it the second-largest DeFi protocol globally after Lido. Undeniably, liquid staking, restaking, native yield, and RWA tokenization are fostering a more active DeFi ecosystem this cycle.
Multicoin (Kyle Samani): Each new cycle brings a new trend. The last was NFTs; this one is memecoins. Almost all memecoin trading activity occurs on Solana’s DeFi ecosystem—and this is no coincidence. Solana offers fast, low-cost transactions, lowering entry and trading barriers. Moreover, all memecoins are natively launched with on-chain liquidity.
1kx (Mikey 0x): In the crypto-native realm: DeFi will continue fulfilling its traditional roles—providing users with access to leverage, trading, lending, and yield-generating protocols. Innovation in this space continues to make participation cheaper and more efficient. Interestingly, many of these memecoins prefer deploying on V2 rather than V3, likely due to simpler liquidity management.
Institutionally: DeFi will help legitimize the space as banks and financial institutions develop more use cases. In real-world assets (RWA), much progress stems from players like BlackRock and Franklin Templeton. Key crypto-native participants include Ondo and Superstate*. At the time of writing, on-chain tokenized U.S. Treasuries have approached $2 billion.
Many teams are building frameworks or entirely new blockchains compliant with existing U.S. anti-money laundering (AML) and know-your-customer (KYC) regulations. Aethos and Sphere are two noteworthy players.
2. In this new cycle, how will DeFi innovation evolve?
OKX Ventures (Esme): DeFi’s first phase was primarily driven by artificial financial incentives, but the next phase should be more practical, organic, and simple—validating its viability as a parallel financial system to traditional finance. Critical infrastructure for onboarding new users—fiat on/off ramps, smart accounts, account abstraction—must improve significantly to attract the next wave of millions of Web3 users. Protocols like Infinex (founded by Synthetix’s creator) and Gnosis Pay, among others, are addressing these gaps.
To enhance user experience and drive mass adoption, all current DeFi applications (trading, cross-chain, wallets, etc.) can be redesigned around “intent.” Intent-based bridges may emerge as the biggest winners. For example, protocols like Across and Connext are transitioning from relay bridge designs to intent-driven models. UniswapX is also experimenting with intent-based innovations, and some perpetual protocols have tried intent-driven approaches like Symmio—but found it challenging to attract market makers to fulfill all trades.
To achieve “universal intent,” some infrastructure projects are building intent layers—creating the necessary conditions for DApps to execute specific user intents. This approach could make on-chain experiences as seamless as using traditional apps. Complex multi-chain operations—opening bridges, signing cross-chain transfers, paying fees, switching networks, interacting with DApps, paying gas—could be reduced to a single step: users simply sign once for the desired transaction.
The future of DeFi will inevitably be layered—combining fine-grained, composable financial primitives so developers can build new protocols, deliver robust financial services to institutions, and improve UX to remove barriers for retail adoption. For example, modular lending separates base-layer functional logic from abstraction and aggregation layers, ensuring accessibility and user-friendliness. Blockchain is inherently inefficient compared to centralized databases and services, but its permissionless access, composability, and options for self-custody or trusting service providers compensate for the cost and friction. If better methods exist to execute these primitives, most top-tier protocols and service providers can rapidly migrate users to new primitives, as higher-level services are designed to be modular. For instance, Uniswap is moving toward modular AMMs, eventually evolving into a native liquidity layer upon which many liquidity and money markets will be built. Uniswap aligns with Ethereum’s rollup-centric roadmap, treating Hooks as the locus of innovation while keeping the base protocol simple. Uniswap v5 may even evolve into an appchain.
Multicoin (Kyle Samani): To date, the most important design domain in DeFi is on-chain derivatives. They provide an efficient structure for trading nearly any asset. We are concentrating much of our effort here, especially working closely with our portfolio company Drift, as we believe they currently offer the best DeFi derivatives product on the market.
1kx (Mikey 0x): As mentioned, the key trend is protocols capturing value through vertical integration. An important consideration is how verticalization leads to liquidity fragmentation and consequent user attrition. While chain abstraction and gas abstraction may ease capital movement across rollups and ecosystems, protocols integrated into an ecosystem gain better discoverability. For example, many teams in the Berachain ecosystem have successfully raised funds simply by launching on Berachain. Additionally, non-EVM ecosystems have the potential to capture significant market share in the coming year.
III. Opportunities and the Evolution of Investment Logic
OKX Ventures (Esme): In our view, utility will become DeFi’s most powerful narrative—and DeFi itself is already a trend. We firmly believe that being first to market isn’t key; true long-term winners are usually those who first achieve product-market fit.
Currently, main use cases revolve around restaking ETH and BTC, and AVSs secured by restaking protocols. Additionally, new L1s like Berachain are driving significant economic transformation, potentially enabling novel DeFi primitives difficult to replicate on other chains.
We see shared economic security as crucial at this stage. Optimizing financial commitments in PoS chains enhances network security by increasing attack costs. Projects like EigenLayer and Babylon are advancing this vision. EigenLayer unlocks liquidity via restaking, while Babylon adds security layers through checkpointing. These mechanisms strengthen security, reduce AVS needs for expanding validator sets, and shorten unstaking periods. As economic incentives and technical iterations evolve, we’ll witness diverse approaches to shared economic security.
Economic models and yield mechanisms are also transforming. DeFi is gradually shifting toward real yield—rewarding users with actual revenue instead of token emissions. For example, Aave’s new tokenomics reduce $AAVE sell pressure and emissions through protocol revenue, while buybacks enhance value capture. Aave also introduced Umbrella, a new security module that isolates risks across different assets, improving system safety. For DeFi, sustainable growth means moving beyond Ponzi-driven consensus—either through real yield or reducing reliance on governance tokens. We may see the professionalization of “Farming as a Service,” making it easier for ordinary investors to participate and profit, boosting DeFi’s appeal and adoption.
Technical iterations are resolving existing issues. For example, integrating ZK privacy tech allows verification that users aren’t on regulated criminal watchlists while preserving privacy. Low governance efficiency will improve through automated, data-driven, dynamic governance powered by machine learning. In protocol design, there’s growing incentive to detect user behavior and adapt accordingly—for instance, personalized credit and interest rates via scoring systems, where well-behaved users enjoy lower loan or collateral rates, increasing engagement and loyalty. Innovative protocols will dynamically adjust interest rates and collateral requirements, enabling fine-grained risk management, improved security, and more effective user risk mitigation.
The future of DeFi will inevitably evolve from speculative trading to real-world applications. Building on past iterations and integrating scaling solutions, new token paradigms, zero-knowledge proofs, AI, and more, the focus will be on creating a safer, interconnected ecosystem—leveraging the latest infrastructure advances to transform applications. By overcoming past limitations and introducing more sustainable economic models, we aim to revolutionize user experience and accessibility, delivering lower fees and intuitive interfaces.
Multicoin (Kyle Samani): The greatest opportunity lies in on-chain derivatives. We’ve barely tapped the potential of perpetuals and on-chain options. They promise to vastly expand financial inclusivity, bring new asset classes on-chain, and unlock superior hedging, leverage, and investment expression. That’s why we’re dedicating most of our efforts here—and why we believe Drift is currently the DeFi protocol best positioned to seize this opportunity.
1kx (Mikey 0x): At 1kx, we prioritize long-term growth over short-term gains. From a narrative standpoint, real-world assets (RWAs) may be the most compelling area. If DeFi is to grow 100x over the next decade, it must harness institutional power. Over time, the value proposition becomes clearer: open, transparent, composable ledgers that dramatically reduce intermediary costs.
Another direction is the “on-chain CEX” concept proposed by Hyperliquid. While perpetuals are a major part of exchange revenue, they also generate indirect income—such as directing customers to their on-chain ecosystem. Hyperliquid shares this vision, starting with perpetuals, expanding into spot token launch platforms, and building an ecosystem around both.
In a relatively mature market like DeFi, the key to positioning lies in identifying teams with unique advantages in distribution and marketing. Today, breakthroughs based solely on core mechanism innovation are rare—we believe the era of such breakthroughs may be behind us.
As the field expands and more protocols emerge, fundamental-driven positioning will become central. New capital allocators seek real cash flows and growth visibility. Currently, the market is pricing in extremely high growth expectations for DeFi (based on metrics like P/E ratios)—targets that may be achievable, but likely over longer timelines than anticipated.
OKX Ventures disclaimer, please read https://www.okx.com/zh-hans/learn/okx-disclaimer.
Multicoin Capital disclaimer, please read https://multicoin.capital/disclosures/
1kx disclaimer, please refer to: https://1kx.network/important-disclosures
Risk Warning and Disclaimer
This article is for informational purposes only. The content reflects the authors' views and does not represent the position of OKX. This article is not intended to provide (i) investment advice or recommendations; (ii) an offer or solicitation to buy, sell, or hold digital assets; or (iii) financial, accounting, legal, or tax advice. We do not guarantee the accuracy, completeness, or usefulness of the information provided. Holding digital assets—including stablecoins and NFTs—involves high risk and may experience significant volatility. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. Please consult your legal/tax/investment professionals regarding your specific circumstances. You are solely responsible for understanding and complying with applicable local laws and regulations.
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