"DeFi's Ouroboros: Can We Escape the Loop and Bridge Real-Yield by 2025?"

DeFi's Ouroboros: Can We Escape the Loop and Bridge Real-Yield by 2025?

DeFi, or decentralized finance, has been a double-edged sword since its inception. While it has fast-tracked financial innovation, it has also failed with some questionable economic models. However, the allure of a 24/7 market that offers opportunities for younger generations to earn on their own terms remains strong.

One of the most promising aspects of DeFi is the concept of staking, where users can earn rewards for securing a network. This has led to the creation of liquid staked tokens (LSTs), which allow users to earn rewards without running nodes. Ethereum-based liquid staking has witnessed significant growth, with a total value locked (TVL) of $70 billion by the end of 2024. However, only around 28% of ETH supply is actively staking, indicating room for growth.

As competition for rewards heats up, users and capital allocators will need to decide how to stack yield efficiently to maximize the value of their on-chain collateral. Restaking, a process that turns idle LSTs into liquid restaking tokens (LRTs) to earn extra yield, has emerged as a potential solution. However, the returns from restaking are currently limited to loyalty points, tokens, and other inflationary economic incentives.

The challenge for DeFi is to provide flexible, mobile, reward-accruing, stackable products that meet the demands of users. However, protocol design has lagged behind demand, leading to a situation where capital never leaves DeFi, creating an ouroboros effect. To break this cycle, DeFi needs to offer products that provide diversified exposure to new asset classes with transparent, user-friendly experiences.

By 2025, DeFi is expected to surge with new blood, products, and a shift in perspective about high-quality collateral. Tokenized TradFi products like on-chain money market funds, credit funds, and hybrid on-chain/off-chain models are emerging, which should unlock a wave of new capital deployment. This will force DeFi to build toolkits and infrastructure to help the trillions of dollars waiting to move at the speed of on-chain finance.

However, a massive knowledge gap remains between DeFi builders, TradFi, and regulators. Seasoned De