Decentralized Finance has been a mainstay within the cryptocurrency industry since it skyrocketed in popularity in the summer of 2020, also known as “DeFi summer.” It’s been one of the most developed and discussed use cases for smart contract-based cryptocurrencies like Ethereum and even Solana. However, like all narratives in the blockchain space, DeFi has experienced a rocky road especially in the wake of the 2022 FTX collapse and ensuing bear market. Poorly managed protocols like LUNA imploded and dragged down the value and reputation of other players. However, as of Q3 2024 the TVL in DeFi still amounted to over $160 billion, and the sector seems to be seeing new light lately especially with the new Trump administration’s seeming preference for on-chain utility projects.
Looking ahead, 2025 may be a transformative year for DeFi due to clearer regulations, increased mainstream adoption, and consistent technological improvements. DeFi may evolve from a niche experiment to a disruptive global force, but challenges certainly remain. With recent outperformances of linchpin DeFi projects like Chainlink and Aave, along with the buzz generated by newcomers like Hyperliquid, it’s time to revisit the DeFi landscape and examine how it can shape up in the coming years.
Trump’s World Liberty Financial Delves into DeFi
On December 12, 2024 incoming U.S. president Donald Trump’s cryptocurrency project World Liberty Financial made significant investments into the DeFi space. On-chain data showed that the project address purchased $10 million in ETH, $1 million in LINK, and $1 million in AAVE. This move hinted at the new administration’s positive outlook on decentralized finance because AAVE is the leading lending and borrowing platform within crypto while Chainlink is the top oracle that provides real-time data to other DeFi protocols. Both altcoins rose by roughly 30% in the 24 hours following Trump’s move, but many legacy DeFi projects have already been seeing a resurgence prior to the news. This is likely due not only to short-term news but consistent developments being made by their respective teams.
AAVE Progress - Aave is a decentralized lending platform that allows users to borrow crypto instantly by using other cryptocurrencies they own as collateral. Additionally, users can lend out their crypto to earn interest on their deposits. All this activity is facilitated using smart contracts so there are no middlemen. The project has made several technological upgrades including a pending launch on Linea, a zk-rollup network supported by Consensys. This integration aims to improve Aave's scalability, allowing for higher transaction throughput and significantly lower fees. AAVE has also recently announced plans to collaborate with Balancer to upgrade the latter’s decentralized exchange and automated portfolio management protocol. Furthermore, AAVE currently benefits from the wider industry’s bullish sentiment as its stablecoin pools are paying out high APYs, that’s evidence of more borrowing and leveraged financial activity.
Chainlink Progress - As the preeminent decentralized oracle network, Chainlink enables decentralized applications (DApps) and blockchains to access secure, reliable, off-chain real-world data. Since blockchain smart contracts typically operate within a closed system, Chainlink allows them to securely interact with external information from the real world. Much of the positive outlook on Chainlink stems from its image as the project that connects on-chain with off-chain. And to that end, the protocol has recently partnered with major financial institutions to improve corporate data reporting using blockchain. Collaborators include traditional finance mainstays like Franklin Templeton, UBS, and Wellington Management. Another significant reason for Chainlink’s recent outperformance is because many believe in the prevalence of tokenization and the real world asset (RWA) narrative going forward, and oracles like Chainlink are integral to that process.
Hyperliquid - New Innovations in DeFi
Hyperliquid is a decentralized exchange that specializes in trading perpetual contracts. It runs on its own proprietary layer 1 blockchain that’s custom-built for high speed transactions and high throughput for crypto derivatives. While the DeFi space is already chock full of highly performant DEXes, what sets Hyperliquid apart is its community-first approach. Unlike many projects that rely on venture capital funding, Hyperliquid opted for a more community-driven model. This was demonstrated during its Token Generation Event of $HYPE which showcased one of the largest community-focused airdrops in DeFi history that made waves across the crypto space.
Unlike traditional exchanges that rely on off-chain order books, Hyperliquid maintains a consistent flow of transactions using a Byzantine Fault Tolerance (BFT) consensus mechanism. This consensus algorithm allows a network of nodes to reach agreement, even if some nodes are malicious or faulty. Consensus is achieved when 75% of the network's nodes agree to ensure secure and tamper-resistant transaction processing. The Hyperliquid chain currently supports up to 20,000 operations per second (including orders, cancellations, and liquidations), to enable high-volume trading while maintaining performance and responsiveness. Another key advantage of Hyperliquid L1 is its full-stack customizability, allowing developers to tailor the platform for specific applications without relying on external frameworks. This flexibility enables more efficient and purpose-built development, offering greater control over the blockchain's architecture and performance.
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