2025 Mainstream Preview: Make DeFi Great Again
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2025 Mainstream Preview: Make DeFi Great Again
A new interest rate cut cycle will attract more capital into DeFi, similar to the macro environment during the 2020–2021 DeFi Summer.
Navigating Web3 tides with focused insightsAuthor: YBB Capital Researcher Ac-Core
TL;DR
● World Liberty Financial, jointly launched by the Trump family and top figures in the crypto industry, is gradually shaping the direction of the sector. Its recent token purchases have driven price increases in the secondary market;
● After Trump’s election victory, potential short-term pro-crypto policies may include establishing a U.S. Bitcoin strategic reserve, mainstream legalization of crypto, and a debt plan aligned with ETF issuance;
● A new rate-cutting cycle will attract more capital into DeFi, creating macroeconomic conditions similar to the 2020–2021 DeFi Summer;
● Lending protocols such as AAVE and Hyperliquid have drawn significant market attention, showing strong signs of recovery and breakout potential;
● Binance and Coinbase's recent listing trends are increasingly favoring DeFi-related tokens.
1. Off-chain developments influencing overall market trends:
1.1 World Libertyfi and the Trump administration
Image source: Financial Times
World Liberty Financial positions itself as a decentralized financial platform offering fair, transparent, and compliant financial tools. It has attracted a large user base and symbolizes the beginning of a banking revolution. Jointly initiated by the Trump family and leading figures in the crypto industry, it aims to challenge traditional banking systems through innovative financial solutions. This reflects Trump’s ambition to position the United States as a global leader in cryptocurrency.
Recently, several DeFi tokens have seen price rebounds following World Liberty Financial’s purchases in December, including ETH, cbBTC, LINK, AAVE, ENA, and ONDO.
1.2 Pending pro-crypto policies
The 47th President of the United States, Donald Trump, will be inaugurated on January 20, 2025. Three major pro-crypto policy initiatives are expected:
● Trump reaffirms plans to establish a U.S. Bitcoin strategic reserve
Strategic reserves are key resource stockpiles released during crises or supply disruptions—the most famous being the U.S. Strategic Petroleum Reserve. Trump recently stated that the U.S. plans to make significant moves in the crypto space, potentially establishing a cryptocurrency reserve analogous to the oil reserve. According to CoinGecko data from July this year, governments collectively hold 2.2% of the global Bitcoin supply, with the U.S. holding 200,000 BTC, valued at over $20 billion.
● Mainstream legalization of crypto
With Trump returning to power, full legalization of cryptocurrencies may be realized. The administration could adopt more open policies in this domain. At the Blockchain Association’s annual gala, Trump praised the association’s efforts toward U.S. crypto legislation; highlighted real-world use cases like DePIN as justification for legalization; and pledged to ensure Bitcoin and crypto thrive in America.
● Crypto one-two punch: Strengthening dollar dominance + Bitcoin strategic reserve + crypto legalization + ETFs = Bonds
Trump’s public support for crypto assets brings multiple benefits: 1) reinforcing the dollar’s status and USD pricing power in the crypto industry during his term; 2) front-running the crypto market to attract more capital inflows; 3) pressuring the Federal Reserve to align with his agenda; 4) compelling previously hostile capital to reconcile with him.
As shown in the chart below, the U.S. Dollar Index was around 80 in 2014, while U.S. debt stood at approximately $20 trillion. Today, U.S. debt has risen to about $36 trillion—an 80% increase—yet the dollar continues to appreciate abnormally. If the dollar maintains its strength, combined with the SEC’s approval of spot Bitcoin ETFs, the new incremental inflows could fully cover future debt issuance costs.
Data source: investing
Data source: fred.stlouisfed
1.3 A new rate-cutting cycle enhances DeFi attractiveness
Data from the U.S. Bureau of Labor Statistics shows core inflation rose 0.3% for the fourth consecutive quarter in November, up 3.3% year-on-year. Housing costs declined slightly, but goods prices excluding food and energy increased 0.3%, the largest rise since May 2023.
The market reacted swiftly, raising the probability of a Fed rate cut next week from 80% to 90%. Investment manager James Asch believes a December rate cut is almost certain. Short-term U.S. Treasury yields initially rose then fell due to mixed employment data, strengthening expectations for rate cuts before year-end. Meanwhile, JPMorgan expects the Fed to cut rates quarterly after the December meeting until the federal funds rate reaches 3.5%.
DeFi’s revival is not only driven by internal factors but also significantly influenced by external economic shifts. As global interest rates change, high-risk assets such as crypto and DeFi become more attractive to investors seeking higher returns. Markets are preparing for a potentially low-rate environment—similar to the conditions that fueled the 2017 and 2020 crypto bull runs.
DeFi’s resurgence is not solely driven by internal dynamics. External catalysts—including Bitcoin ETF approvals, crypto legalization, and shifting global interest rates—will increasingly impact the crypto market. Lower interest rates make high-risk assets more appealing, echoing the macro backdrop of the 2017 and 2021 crypto bull markets.
Thus, DeFi benefits under low-interest-rate conditions in two ways:
1. Lower capital opportunity cost: As returns on traditional financial products decline, investors may turn to DeFi for higher yields (though this also implies compressed profit margins in the future crypto market);
2. Reduced borrowing costs: Cheaper financing encourages users to borrow and activate the DeFi ecosystem.
After two years of adjustment, key metrics such as Total Value Locked (TVL) are beginning to rebound. Trading volumes on DeFi platforms have also surged significantly.
Data source: DeFiLlama
2. On-chain growth driving market momentum:
2.1 The resurgence of lending protocol AAVE
Image source: Cryptotimes
AAVE V1, V2, and V3 share the same architecture, while V4’s main upgrade introduces a "Unified Liquidity Layer." This feature expands upon the Portal concept introduced in AAVE V3. Portal, a cross-chain function in V3, aimed to enable cross-chain asset deposits, but many users were unfamiliar with or never used it. Portal was designed to bridge assets across blockchains by burning and minting aTokens.
For example, Alice holds 10 aETH on Ethereum and wants to transfer them to Arbitrum. She can submit the transaction via a whitelisted bridge, triggering these steps:
1. The contract on Arbitrum temporarily mints 10 aETH without underlying collateral;
2. These aETH are sent to Alice;
3. Bridge transactions are batch-processed to move the actual 10 ETH to Arbitrum;
4. When funds arrive, the ETH is deposited into the AAVE pool, backing the minted aETH.
Portal enables users to transfer funds across chains to chase higher deposit yields. While Portal achieved cross-chain liquidity, it relied on whitelisted bridges rather than the core AAVE protocol, meaning users couldn't directly access the feature through AAVE itself.
The V4 "Unified Liquidity Layer" improves upon this by adopting a modular design to centrally manage supply, borrowing limits, interest rates, assets, and incentives—enabling more efficient dynamic allocation of liquidity. The modular structure also allows AAVE to easily add or remove modules without large-scale liquidity migrations.
Leveraging Chainlink’s Cross-Chain Interoperability Protocol (CCIP), AAVE V4 will build a "Cross-Chain Liquidity Layer," allowing users instant access to all liquidity resources across networks. These enhancements will evolve Portal into a full-fledged cross-chain liquidity protocol.
Beyond the Unified Liquidity Layer, AAVE V4 plans to introduce dynamic interest rates, liquidity premiums, smart accounts, dynamic risk parameter configurations, non-EVM ecosystem expansion, and more—centered around the GHO stablecoin and AAVE lending protocol to form the Aave Network.
As a leader in DeFi, AAVE has maintained roughly 50% market share over the past three years. The V4 release aims to further expand its ecosystem to serve a potential billion-user base.
Data source: DeFiLlama
As of December 18, 2024, AAVE’s TVL has grown significantly, now exceeding the peak level of the 2021 DeFi Summer by 30%, reaching $23.056 billion. Compared to the previous cycle, this round of DeFi protocol evolution focuses more on modularized lending and improved capital efficiency. (For reference on modular lending protocols, see our previous article: “The Modular Narrative: The Evolution of Modular Lending in DeFi.”)
2.2 Hyperliquid: 2024’s breakout derivatives dark horse
Image source: Medium: Hyperliquid
According to research by Yunt Capital @stevenyuntcap, Hyperliquid’s revenue streams include immediate listing auction fees, HLP market makers’ PnL, and platform fees. The first two are publicly available, and the team recently clarified the third. Based on this, Hyperliquid’s year-to-date total revenue is estimated at approximately $44 million, with $40 million contributed by HLP; Strategy A incurred a $2 million loss while Strategy B generated $2 million in profit; liquidation income amounted to $4 million. Upon HYPE’s launch, the team repurchased HYPE tokens via the Assistance Fund wallet. Assuming no other USDC AF wallets exist, the USDC AF wallet’s year-to-date PnL stands at $52 million.
Combining HLP’s $44 million and USDC AF’s $52 million, Hyperliquid’s total year-to-date revenue is approximately $96 million—surpassing Lido and ranking it as the ninth most profitable crypto project in 2024.
Messari Research @defi_monk recently conducted a valuation analysis of the HYPE token, estimating its fully diluted valuation (FDV) at around $13 billion, potentially exceeding $30 billion under favorable market conditions. Additionally, Hyperliquid plans to launch HyperEVM via a Token Generation Event (TGE), with over 35 teams preparing to join the new ecosystem—positioning Hyperliquid closer to a general-purpose L1 chain rather than just an app-specific chain.
Image source: Messari
Hyperliquid requires a new valuation framework. Typically, killer apps and their L1 networks are valued separately, with app revenues accruing to the app token and network revenues going to validators. However, Hyperliquid integrates both revenue streams. Thus, Hyperliquid not only operates a leading decentralized perpetual futures exchange (Perp DEX) but also controls its underlying L1 network. We apply a sum-of-the-parts valuation method to reflect its vertical integration.
First, consider the Perp DEX valuation.
Messari shares a similar view on the derivatives market as Multicoin Capital and ASXN, differing only in Hyperliquid’s market share assessment. The Perp DEX market is a “winner-takes-all” landscape due to:
● Any Perp DEX can list any perpetual contract, eliminating blockchain fragmentation;
● Unlike centralized exchanges, using a DEX requires no permission;
● Strong network effects in order flow and liquidity.
Hyperliquid’s dominance is expected to grow stronger. By 2027, it could capture nearly half of the on-chain market, generating $551 million in revenue. Currently, trading fees go to the community and are treated as actual revenue. Applying a standard DeFi valuation multiple of 15x, the Perp DEX alone could be valued at $8.3 billion. For enterprise clients, refer to our full model. Next, assess the L1 valuation:
L1 valuations are typically derived from DeFi application premiums. With increasing activity on Hyperliquid’s network, its valuation may rise further. Hyperliquid currently ranks as the 11th largest TVL chain. Comparable networks like Sei and Injective are valued at $5 billion and $3 billion respectively, while similarly sized high-performance networks like Sui and Aptos are valued at $30 billion and $12 billion.
Since HyperEVM has not yet launched, we conservatively estimate Hyperliquid’s L1 premium at $5 billion. However, based on current market pricing, the L1 valuation could reach $10 billion or higher.
Therefore, in a base-case scenario, Hyperliquid’s Perp DEX is valued at $8.3 billion and its L1 at $5 billion, resulting in a total FDV of approximately $13.3 billion. In a bear case, valuation drops to around $3 billion, while in a bull case it could reach $34 billion.
3. Conclusion
Looking ahead to 2025, the comprehensive recovery and takeoff of the DeFi ecosystem will undoubtedly become the dominant theme. Supported by the Trump administration’s favorable policies toward decentralized finance, the U.S. crypto industry is entering a more accommodating regulatory environment, unlocking unprecedented innovation and growth opportunities for DeFi. AAVE, as the leading lending protocol, is regaining and surpassing its former glory through V4’s revolutionary liquidity layer upgrades, solidifying its role as a cornerstone of DeFi lending. In the derivatives space, Hyperliquid has rapidly emerged as 2024’s strongest dark horse, leveraging technological innovation and efficient market consolidation to attract massive user adoption and liquidity.
Meanwhile, listing strategies at major exchanges like Binance and Coinbase are shifting, with DeFi-related tokens becoming a new focal point—for instance, recent listings such as ACX, ORCA, COW, CETUS, and VELODROME. The moves by these two giants reflect growing market confidence in DeFi.
DeFi’s prosperity will extend beyond lending and derivatives, blossoming across stablecoins, liquidity provision, cross-chain solutions, and more. In summary, driven by policy, technology, and market forces, DeFi is poised to rise again in 2025, becoming an indispensable component of the global financial system.
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