From a peak of 270 billion to a flash crash, DeFi ventures into the deep waters of financial infrastructure

Author: Jae, PANews

In 2025, the DeFi (Decentralized Finance) market experienced a rollercoaster ride. At the beginning of the year, driven by explosive Layer 2 performance and institutional capital influx, TVL (Total Value Locked) soared from $182.3 billion to a historic peak of $277.6 billion, making a trillion-dollar ecosystem seem within reach.

However, a sudden 10/11 flash crash in Q4, like a bucket of cold water, sharply shrank TVL to $189.3 billion, erasing the year’s gains to a negligible 3.86%. This intense volatility revealed the true fabric behind the glamorous DeFi narrative: on one side, deep evolution in sectors like staking, lending, and RWA; on the other, vulnerabilities from leverage buildup and fractured governance.

This was a crucible of ice and fire. The market witnessed Lido’s weakening dominance in staking, Aave’s struggles amid governance civil war, Hyperliquid’s fierce challenge from new entrants on the Perp DEX throne, and the oscillation of stablecoins between yield chasing and regulatory frameworks. In 2025, DeFi was no longer just an experiment for crypto natives; it was stepping with uncertain but determined strides into the deep waters of global financial infrastructure.

DeFi TVL first rose then fell, monopoly patterns continue to solidify

The 2025 DeFi market size chart forms a giant inverted V.

Starting at $182.3 billion at the year’s outset, with mid-year market frenzy and ecosystem explosion, TVL briefly hit $277.6 billion. Yet, the flash crash in Q4 abruptly halted this surge, and by year-end, the figure retreated to $189.3 billion, nearly returning to the starting point.

But beneath the surface, capital structures underwent profound changes. RWA (Real World Assets) emerged as a dark horse, surpassing traditional DEXs to become the fifth-largest DeFi category. On-chain finance’s capillaries are extending deeper into the real economy.

Monopoly has become even more entrenched. The top 14 protocols, including Aave, Lido, EigenCloud, hold 75.64% of the market share.

Meanwhile, the profitability of leading protocols soared, with the top ten protocols’ annual revenue doubling from $2.51 billion to $5.02 billion. Funds in DeFi are increasingly concentrated in a few core components.

Staking protocols revert from printing presses to secure foundations; Ethereum ecosystem still dominates

Staking was once the simplest, most straightforward yield story in DeFi. In 2025, this sector experienced a de-bubbling value reversion, with staking protocols evolving from mere yield tools to the economic security engines of public chain networks.

TVL in staking declined from a peak of $92.1 billion mid-year to $55.2 billion.

With increasing security needs of the Ethereum ecosystem, over 35 million ETH (about 30% of total supply) are locked in validator networks. But Lido’s leading position, once over 30%, has fallen back to 24%. This is not decline but maturity, decentralization, and diversification of Ethereum staking.

The most significant change in staking is the move toward compliance. In May 2025, the SEC issued formal guidance clarifying that staking activities do not constitute securities issuance, clearing obstacles for custodians and pension funds to large-scale allocate LSTs (Liquid Staking Tokens). Today, LSTs are no longer just tools for earning staking rewards but are high-liquidity collateral penetrating lending, derivatives, and other applications.

Re-staking protocols achieved a leap from concept to hundreds of billions of dollars in market size in 2025, fundamentally boosting capital efficiency. EigenLayer transformed into EigenCloud, with TVL surpassing $22 billion, becoming the second-largest staking protocol. EigenCloud reuses staked ETH while providing security for multiple active validation service providers (AVS), creating multi-layered yields for holders.

Ether.fi secured over $8.5 billion in TVL and more than $73 million in protocol revenue, cementing its position as a leading liquid re-staking protocol.

Re-staking protocols not only changed ETH staking logic but also pioneered a new “shared security” business model. However, in 2025, the staking sector experienced a clear capital rotation.

As airdrop expectations materialized and early incentives waned, capital shifted from protocols lacking real utility to leading platforms with actual service revenue, marking the sector’s transformation from speculation-driven to business-driven.

Lending sector hits new scale, enters a tiered professional stage

Lending remains the cornerstone of DeFi, with TVL reaching a record $125 billion, stabilizing at $91.6 billion by year-end.

Aave maintains over 50% market share, even amid governance civil war over “sovereignty,” with TVL staying above $54 billion, demonstrating its deep roots.

Related: Falling crypto prices, whale sell-offs, and the governance crisis at Aave

On-chain lending scale increased from $64.1 billion to $90.9 billion, a 42% YoY growth; outstanding loans rose from $26.6 billion to $37.6 billion, about 41% YoY.

Notably, deposit scale peaked at $126.1 billion, and outstanding loans at $51.5 billion, both hitting all-time highs.

Capital utilization rate remained above 40% throughout the year, a healthy level.

Within lending, a silent migration is underway: market preference shifts from MakerDAO’s CDP (Collateralized Debt Position) protocols to AAVE’s money market protocols. Research from Galaxy shows a shift: money market protocols now account for over 80% of on-chain credit, while CDPs have shrunk below 20%. This reflects user preference for high-liquidity lending pools over low-efficiency collateralized debt positions.

Meanwhile, modular protocols like Morpho, Euler V2 create risk-isolated lending vaults, catering to professional users’ customization needs. The lending sector is moving away from “one-size-fits-all” models toward a refined, tiered, professional era.

However, uncollateralized loans seeking higher capital efficiency remain a challenge in 2025, despite experiments like 3Jane based on user identity and credit scoring.

Related: Paradigm leads investment in 3Jane—how will it unlock the trillion-dollar unsecured DeFi credit market?

Yield protocols become infrastructure, competition diversifies

2025 marks the year when yield protocols leap from niche markets to DeFi infrastructure, with TVL rising from $8.1 billion to $9.1 billion, a 12.5% YoY increase, peaking around $18.8 billion.

In traditional finance, fixed income markets vastly surpass equities, and protocols like Pendle finally fill a key gap in DeFi: interest rate trading.

Pendle splits assets into PT (Principal Token) and YT (Yield Token), establishing a predictable on-chain interest rate discovery mechanism. The protocol not only scaled in size but also filled the gap in on-chain fixed income curves with its interest rate products.

In 2025, Pendle’s TVL declined from $4.3 billion to $3.7 billion, about 13% YoY. Yet, its cumulative revenue grew steadily from $17.99 million to $61.56 million, a 242% increase, demonstrating resilience. Even in a down market, Pendle maintained stable revenue generation.

The new product Boros extends Pendle’s business into the funding rate trading market, providing derivatives traders with a hedge against holding costs, seen as a second growth curve for the protocol.

Related: Pendle’s strategic expansion—Boros emerges, innovating the funding rate trading paradigm

The competitive landscape of yield protocols is evolving from a single dominant player to a diversified field. While Pendle remains a major player, newcomers like Spark Savings are rapidly expanding.

Long-term, yield protocols may become a crucial link between DeFi and institutional capital.

DEX user stickiness increases significantly, participant base diversifies

In 2025, DEXs continued to accelerate in user experience and liquidity efficiency, catching up with CEXs (Centralized Exchanges). Sector TVL dropped from $22.3 billion to $16.8 billion, a 25% decline, with a high of $26.6 billion mid-year.

Driven by meme coin speculation frenzy and the hot ecosystems of Solana, Base, etc., DEXs’ share of spot trading in crypto hit an astonishing 21.71% in June.

In 2025, DEX user stickiness increased markedly. For eight consecutive months, DEX trading volume share over CEXs remained above 15%, breaking the pattern of only short spikes at bull market peaks.

Data from Artemis shows Solana-based DEX spot trading volume in 2025 reached $1.7 trillion, accounting for 11.92% of the global spot market, surpassing Bybit, Coinbase, and Bitget, second only to Binance. Since 2022, Solana’s on-chain share rose from 1% to 12%, while Binance’s market share declined from 80% to 55%, indicating a gradual shift of spot activity on-chain.

Uniswap continues to lead the sector, especially in decentralized governance and value capture.

In September, Uniswap Foundation registered Uniswap Governance as a Wyoming-based decentralized unincorporated non-profit association (DUNA), establishing a legal governance structure, and named its entity “DUNI.” This move provides Uniswap with a compliant governance framework and paves the way for activating protocol fee mechanisms.

Related: Uniswap’s compliance breakthrough: how DUNA paves the way for fee switches and token empowerment?

In December, Uniswap launched the UNIfication governance proposal, officially enabling protocol fee switches and burning 100 million UNI tokens.

Related: Major Uniswap proposal: activating fee switches and burning tokens, competitors call it a “strategic mistake”

Though Uniswap remains the sector leader, the technical route of DEXs is shifting from traditional AMM (Automated Market Maker) to Prop AMM (Proprietary AMM), reflecting structural evolution.

Notably, the emerging DEX HumidiFi on Solana is reshaping trader behavior with its low-slippage dark pool model. HumidiFi contributes 36%-50% of Solana’s spot trading volume, with daily SOL/USD trades often surpassing Binance and other CEX giants. Despite controversy over its ultra-low 0.001% fee rate, its excellent performance in resisting MEV, front-running, and privacy makes it the preferred DEX for professional institutions and whales.

Additionally, cross-platform giants like OpenSea are exploring spot trading to seek new growth engines.

Related: Token trading becomes OpenSea’s new growth engine—can it successfully pivot amid token issuance expectations?

Participant diversification further fuels the overall prosperity of the DEX sector. CryptoDiffer data shows that in 2025, among DeFi protocols ranked by fees, Meteora, Jupiter, and Uniswap occupy the top three spots, each exceeding $1 billion.

Perp DEX challenges CEX, from dominance to multi-party competition

If 2024 was the experimental phase for Perp DEXs, 2025 is their breakout year, showing signs of challenging CEXs. Leveraging customized Layer 1 and high-performance ZK-Rollups, execution speed and trading depth of on-chain derivatives have achieved qualitative leaps.

In 2025, Perp DEX contract open interest exceeded $16 billion, with trading volume share against CEXs rising from 6.34% to 17%.

Hyperliquid leads the Perp DEX sector, supporting 200,000 TPS and sub-second settlement, matching mainstream CEX performance. Its annual trading volume exploded from $617.5 billion to $3.55 trillion. The protocol’s OI/Vol (Open Interest/Volume) ratio has remained high around 2, indicating most trading is genuine hedging and trend positioning, not mere volume farming.

Hyperliquid’s success lies not only in technology but also in its “no VC, community-first” tokenomics, which has gained significant trust premium in today’s market environment wary of VC tokens.

However, Hyperliquid’s market share has halved from 43% to 22%. This shows the competition in the Perp DEX sector is evolving from Hyperliquid’s dominance to a multi-hero landscape.

Related: Perp DEX new and old contenders: Hyperliquid faces hundred-billion unlock pressure, new platforms compete for traffic through incentives

Main challengers include two strong competitors: one is Aster, backed by Binance ecosystem and skilled in social viral growth; the other is Lighter, using ZK proof tech and pioneering zero-fee models. Together, they captured half the market share in 2025, rapidly diverting retail funds.

Related: Aster’s “Trojan Horse”: how it leverages BNB Chain to stealthily target Hyperliquid’s throne?

Airdrops of $675 million sparked distribution disputes; Lighter faces user retention challenges post-token issuance.

Hyperliquid counters with “investment portfolio margin” and other institutional-grade features. The Perp DEX battle is no longer just about speed but a comprehensive contest of tech routes, traffic strategies, and capital efficiency.

Related: Hyperliquid to launch investment portfolio margin—ultimate weapon or lethal tool?

RWA deeply penetrates on-chain markets, enabling scale expansion

In 2025, the walls between on-chain markets and real assets are rapidly falling, making RWA a year of scale. Tokenized assets’ market cap (excluding stablecoins) soared from $5.6 billion to over $20 billion.

Against the backdrop of full RWA narrative launch and accelerated global asset on-chain, traditional giants like Swiss precious metals group MKS PAMP are restarting or exploring tokenization products, marking a deep convergence of on-chain finance and real assets.

Related: Swiss gold giant MKS PAMP “returns,” re-entering the gold tokenization race

Tokenized US Treasuries are becoming a bridge connecting traditional risk-free yields and on-chain strategies. BlackRock’s BUIDL fund achieved textbook expansion in 2025, growing rapidly from $650 million to $1.75 billion, further consolidating its leading position in tokenized US debt products. BlackRock brings not only capital but also brand backing, enabling BUIDL tokens to serve as collateral in protocols like Aave and Euler, and through cross-chain distribution, integrating US Treasury yields into DeFi markets.

RWA may be turning into a counter-cyclical tool. When the crypto market pulled back in March 2025 due to tariff policies, tokenized US debt market’s value increased by $1 billion in a month, about 33%.

The same happened again in November 2025, when tokenized gold and silver products surged past $3.5 billion amid rising precious metals prices and geopolitical turmoil, reflecting a trend of capital seeking safe havens on-chain.

Related: Gold and silver frenzy sparks a commodities trading boom on-chain

Stablecoin regulation implementation leads to dual-scale and pattern evolution

The stablecoin sector advances amid compliance and innovation. In 2025, stablecoins evolved into the monetary base layer connecting payments, trading, and collateralization. The sector’s maturity is mainly reflected in regulatory implementation and model innovation.

2025 marks the turning point where global stablecoin regulation moves from theory to practice. With the US “GENIUS Act” progressing, a preliminary federal stablecoin framework emerges, allowing traditional banks like JPMorgan and Citibank deeper involvement in issuance and reserves.

Related: US banking industry resists “Genius Act,” stablecoin shockwaves shake traditional giants

The full implementation of Europe’s MiCA regulation requires crypto asset service providers (CASPs) to switch to compliant stablecoins, causing significant liquidity shifts in European markets.

Related: USDT exits, EURC enters, euro stablecoin surges over 170% against trend

Regulatory transparency has become an entry ticket for institutions. Stripe acquires Bridge and integrates USDB stablecoin; PayPal issues PYUSD; Klarna launches KlarnaUSD. DeFiLlama reports that regulated stablecoins settled over $50 trillion in 2025, with monthly processing volumes surpassing Visa and PayPal for several months, demonstrating blockchain’s superior payment infrastructure.

Stablecoins, as the lifeblood of DeFi, experienced dual-scale and pattern evolution in 2025. Market cap once hit $300 billion, with a “bipolar monopoly and internal innovation” pattern.

USDT still holds over 60% market share, with USDC ranking second due to transparency and compliance.

Rising interest rate expectations fueled strong demand for on-chain yield assets, with user preference shifting from payment-focused stablecoins to yield-bearing stablecoins. DeFiLlama reports that yield stablecoins grew from $9.5 billion to over $20 billion in 2025, a 110%+ YoY increase.

Synthetic USD USDe issued by Ethena surged in 2025. The protocol does not rely on fiat reserves but creates delta-neutral positions by establishing perpetual short contracts on interest-bearing assets like ETH.

Thanks to high-leverage cycles on Aave and Pendle, USDe supply approached $15 billion. However, the flash crash on October 11 caused USDe to temporarily depeg from $1 to $0.65 on Binance spot, with residual effects pushing USDe TVL down to $6.3 billion, a 58% drop from its peak.

Related: Crypto crash apocalypse: triple contagion of market collapse, how industry can rebuild more resilient foundations?

Subsequently, Ethena launched a white-label platform aiming to create a second growth engine.

Related: Ethena after depegging: TVL halved, ecosystem hit, how to unlock a new growth curve?

Trouble compounded: in November, Stream and Elixir collapsed after external fund managers’ liquidations, causing their yield-stablecoins xSUD and deUSD to go to zero. This dealt a heavy blow to the market and sounded an alarm: even seemingly safe stablecoins must beware of underlying complex strategies, as systemic risks have migrated from code to counterparty layers.

Related: DeFi reflection: four stablecoins go to zero in one week—say NO to “black box” operations

Meanwhile, MakerDAO, renamed Sky, grew steadily. Although its stablecoin USDS faced initial bottlenecks, by integrating RWA assets and directly earning treasury yields, it provided stable and sustainable native returns, pushing USDS past USDe to become the third-largest in the sector.

The evolution of these seven sub-markets makes 2025’s DeFi no longer an isolated experiment. It demonstrates powerful financial engineering, turning staking, lending, yields, and even treasuries into programmable Lego blocks. But it also exposes human greed: governance conflicts, leverage collapses, black box operations… The “10/11 flash crash” acts as a mirror, revealing cracks behind the prosperity.

Yet, the crash did not cause systemic failure. Leading protocols showed resilience amid the storm, real use cases are maturing, and perhaps this is the price of DeFi’s coming of age.