Re-examining | The Next Step for DeFi: View from an OKX Web3 Product Manager
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Re-examining | The Next Step for DeFi: View from an OKX Web3 Product Manager
It has been four years since DeFi Summer in 2020. Times have changed. Today, we take another look at DeFi and explore its next steps.
Navigating Web3 tides with focused insightsOnce a key growth engine for the crypto market, DeFi has seemed relatively quiet over the past two years.
Although new exchanges emerging on Ethereum Layer2 are aggressively attracting liquidity, and established DeFi protocols like MakerDAO and Unichain have made some adjustments, these "innovations" tend to focus more on business transformation rather than technological or model-level innovation.
As a Web3 super gateway handling user traffic, OKX Web3 Wallet focuses more on enhancing user experience and lowering barriers for users to easily navigate the on-chain world. This article aims to explore the current state of DeFi and its future trajectory from the perspective of OKX Web3's product managers.
Overview of the DeFi Market and User Profile
In 2024, interest in the DeFi sector has somewhat declined. After the initial excitement around LSD and Pendle in the first half of the year, the market gradually calmed down, lacking new narratives to drive momentum. However, since the beginning of the year, the LSD and LRT sectors have maintained strong growth, especially re-staking projects represented by EigenLayer, which brought nearly $20 billion in new capital into DeFi via the LRT sector. Meanwhile, the yield-focused market led by Pendle has also performed impressively, with its market cap growing nearly fourfold since the start of the year—Pendle contributing most of this increase.
Additionally, the total value locked (TVL) in the RWA sector has doubled since the beginning of the year, driven primarily by private lending, tokenized government bonds, and increasing participation from traditional financial institutions. BTCFi has been boosted by the ordinals narrative, as developers work to enable smart contract-like functionality on the Bitcoin mainnet, unlocking capital and users within Bitcoin to further build out the DeFi ecosystem, sparking a new wave of growth.
Currently, the overall TVL in the DeFi market rose from an initial $50 billion at the start of the year to a peak of $120 billion, before settling back to approximately $80 billion. The LSD sector still holds the largest market share, followed by lending and DEX segments.
At the beginning of 2024, DeFi’s total value locked (TVL) stood at $50 billion, later peaking at $120 billion, and currently sits around $80 billion. The LSD sector maintains the largest market share, followed by lending and DEX domains.
On the user side, current DeFi users can be categorized into the following groups:
- Crypto-native individual users: Their primary need is access to more on-chain yield-generating opportunities, such as earning returns through stablecoins. Advanced users pursue more complex DeFi strategies, creating layered “matryoshka” setups to achieve higher returns.
- Institutional users such as on-chain DAOs: These users prioritize treasury management and stable returns, favoring low-risk foundational DeFi protocols, particularly those involving RWA that bring off-chain assets (like U.S. Treasuries) on-chain for yield generation.
- Traditional financial institutions: They are increasingly recognizing the efficiency and composability advantages of DeFi and are beginning to tokenize traditional assets to explore additional distribution channels.
- Users unfamiliar with DeFi: While interested in the higher yields available on-chain, these users face high entry barriers and often require guidance to get started.
Users suitable for participating in DeFi typically possess a certain level of risk tolerance and strong learning ability—especially those who already have some understanding of the on-chain ecosystem and crypto assets and are eager to dive deeper tend to be the most active in DeFi.
Risks and Common Sources of Yield in DeFi
The main risks currently facing the DeFi space include the following:
1. Smart contract security at the protocol layer: This is the biggest risk in DeFi—vulnerabilities in smart contracts could lead to exploits and loss of funds.
2. Project team credibility risk: Project teams may engage in rug pulls or abandon projects, jeopardizing user funds.
3. Regulatory risk: As DeFi scales up, governments and regulators are paying closer attention. Stricter regulations in the future—particularly around KYC and AML compliance—could impact operations.
4. Liquidity risk: DeFi protocols rely on liquidity providers. Sudden withdrawals of liquidity (e.g., whale movements) can destabilize markets, increase trading costs, or trigger liquidations.
5. Market risk: Many DeFi platforms depend on major cryptocurrencies like Ethereum. Prices of these assets can be highly volatile, potentially leading to user losses—and in severe cases, significantly impacting the broader DeFi ecosystem. Moreover, DeFi trends shift rapidly, requiring users to stay updated and adjust positions in real time, or risk missing high-yield opportunities.
Regarding common yield sources and associated risks, DeFi offers multiple underlying yield mechanisms: providing liquidity as an LP on DEXs to earn trading fees; supplying lendable assets on lending protocols to earn interest; staking, LSD, and LRT generate returns from staking rewards (such as Ethereum PoS yields), project tokens, and points. For perpetual contract LPs (like GLP, JLP), revenue comes from counterparty trading fees or funding rates. Finally, RWA (real-world asset) yields originate from off-chain traditional assets such as U.S. Treasuries or real estate. Additionally, many DeFi projects offer extra token incentives to liquidity providers, including partner project tokens.
Overall, higher risk generally correlates with higher potential returns. Basic lending protocols and staking are relatively safer but offer lower yields, whereas more complex activities—such as being an LP on DEX V3—require actively adjusting price ranges and carry higher risks despite offering greater returns. Therefore, users should carefully select products aligned with their own risk tolerance.
Currently, OKX Web3 has implemented certain security measures, as we believe protocol safety is crucial for mass adoption of DeFi. Before integrating any new protocol, OKX conducts thorough due diligence—our BD team evaluates the background of the project team, while our technical team performs in-depth smart contract reviews and ensures audit reports are available. As a DeFi aggregator, OKX DeFi only connects to protocols that have passed security verification. The platform does not custody user funds and serves solely as a bridge enabling one-click access to DeFi. Furthermore, OKX DeFi provides users with an additional yield layer funded by project subsidies, which are distributed directly to users without passing through the OKX platform—further reducing fund-related risks.
Current State and Future Direction of OKX DeFi Products
Looking ahead, RWA (real-world assets) may become a potential growth catalyst for DeFi. As traditional assets such as real estate, bonds, and stocks are gradually brought on-chain, DeFi protocols can unlock higher liquidity and yield opportunities. In 2024, more institutions are expected to focus on the integration of RWA and DeFi, bringing increased capital and new opportunities into the DeFi ecosystem. At the same time, institutional investor interest in DeFi continues to grow—especially in stablecoin lending and yield-generating products—prompting more traditional financial institutions to explore ways to participate in DeFi. Institutional involvement will help mature and standardize the DeFi market, driving more capital inflows and enabling more stable yield products.
Moreover, CeDeFi—blending CeFi and DeFi—is fostering innovative products, such as Ethena’s yield-bearing stablecoin model. In the BTCFi space, novel staking protocols and upstream LSD ecosystems based on Bitcoin, such as Babylon, are emerging.
OKX’s DeFi products primarily focus on building an all-in-one DeFi aggregator. Users can access various DeFi protocols across the entire network through the OKX platform, making position management significantly more convenient. OKX not only helps filter out risks from most protocols but also refrains from custodying user funds. Additionally, it offers users an extra yield layer beyond what’s available on protocol websites, enhancing overall returns. OKX is also designing exclusive DeFi strategy products, leveraging team expertise to help users achieve higher yields.
OKX’s future DeFi development plans include: building the best all-in-one DeFi yield aggregator across networks, aggregating DeFi protocols from all major public chains and supporting emerging trending projects to provide more early-stage yield opportunities; launching a powerful DeFi dashboard to display users’ full portfolio positions and PnL across networks; and productizing complex DeFi strategies through expert teams to simplify the trading process and make DeFi more accessible to a broader audience.
Disclaimer
This article is for informational purposes only. The views expressed herein are those of the author and do not reflect 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 values may fluctuate significantly. 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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