Experts point out that in 2024, the Decentralized Finance (DeFi) sector will experience an unprecedented transformation driven by integration with traditional financial institutions and the rise of tokenization of real-world assets, among other key trends.
According to experts consulted by The Block, the institutional entry into the world of cryptocurrencies and, especially, into the ecosystem of decentralized finance, accelerated after the Approval and launch of Bitcoin and Ethereum exchange-traded funds (ETFs) this year.
Financial regulators’ backing of these funds has generated greater confidence among traditional institutions, which are looking to explore the potential of the industry and digital assets. Kean Gilbert of Lido Finance commented that spot ETFs have significantly expanded the reach of DeFi in the markets, facilitating institutional participation.
Additionally, other key trends in the crypto industry this 2024, such as the asset tokenization in the blockchain, the increase in Layer 2 scaling solutions and integration of artificial intelligence, are driving the growth of the DeFi sector. These innovations are redefining both investment and liquidity in the financial sector, offering new opportunities and business models in cryptocurrencies that could radically transform the economic landscape.
DeFi and TradFi: A turning point in the evolution of the crypto ecosystem
This year, the integration between DeFi and traditional finance (TradFi) has reached an unprecedented level, marking a turning point in the evolution of the crypto ecosystem. This convergence, according to experts, represents more than just an evolution in the way financial transactions are conducted. Many have pointed out that the way traditional and decentralized finance are converging is opening the door to new opportunities for investors and institutions. They therefore anticipate that 2025 will witness a radical transformation in the access and use of financial services, thanks to the adoption of innovative technologies that facilitate this fusion.
As mentioned above, the integration between DeFi and traditional finance has been driven by a number of key factors and trends, including institutional adoption, technological innovations, and a more favorable regulatory environment.
Key 2024 trends that have driven institutional entry into the world of cryptocurrencies
One of the most significant trends of 2024 has been the growing Institutional adoption of cryptocurrenciesAccording to Alvin Kan, COO of Bitget Wallet, traditional financial institutions are leveraging DeFi tools, such as automated liquidity provision and smart contracts, to improve the efficiency and transparency of their operations.
Kan also stressed that the tokenization of real-world assets has played a crucial role in the integration between DeFi and TradFi, unlocking liquidity for blockchain-based platforms and expanding investor access to the decentralized financial ecosystem, he explained. Kan stressed that this has allowed TradFi institutions to access new financial markets and products, increasing liquidity and diversification of their portfolios.
Lido Finance's Gilbert agreed with Kan that institutional adoption has been one of the main trends of 2024, highlighting that the approval of Bitcoin and Ethereum ETFs provided institutions with a regulated avenue to invest in cryptocurrencies, increasing their confidence in the sector. However, Gilbert also highlighted that this growing adoption has sparked debates about the future of decentralization. According to his reflection, many are questioning whether the institutions that are entering the crypto sector really support the principles of decentralization or if, on the contrary, they are putting the integrity of the industry at risk by concentrating power in the hands of a few.
On the other hand, another key trend that is revolutionizing the DeFi sector and driving its integration with traditional finance has been the Deploying Layer 2 Scaling Solutions on EthereumAccording to Brecht Devos, co-founder of Taiko Labs, Layer 2 solutions are improving efficiency and reducing transaction costs, which has facilitated adoption by institutions looking for faster and cheaper alternatives.
“This trend speaks to a clear need for networks that can operate faster, more efficiently, and scale to support large DeFi ecosystems and decentralized applications (dApps) without compromising decentralization.”, said Devos to The Block.
How innovations in 2024 transformed the Decentralized Finance sector?
Experts consulted by The Block have highlighted that all the aforementioned innovations in the crypto sector have transformed DeFi in 2024, since in addition to trust, efficiency, and accessibility, these innovations are also allowing traditional institutions to diversify their portfolios and enter a space that was previously out of reach for many. To visualize this, Kan highlighted that the tokenization of assets on the blockchain is not only improving liquidity, but is also democratizing access to previously restricted investments.
Likewise, The incorporation of AI is optimizing processes within the DeFi ecosystem, attracting more investors to this space, thanks to improvements in key areas such as risk management and trading automation. Experts noted that these trends are creating an enabling environment for traditional financial institutions to integrate into the DeFi ecosystem, resulting in robust and sustained growth of the sector.
Donald Trump's presidency and its impact on the DeFi landscape
On the other hand, Donald Trump’s re-election as President of the United States is also considered a crucial factor in the evolution of the DeFi sector. Trump, who made himself known for his pro-crypto stance during his campaign, has promised a relaxation of regulations and a more favorable environment for innovation in the crypto space. This could include measures to simplify the existing regulatory framework and encourage institutional adoption.
John Paller, founder of ETHDenver, believes that Trump's focus on flexible regulation and encouraging economic growth could create ideal conditions for DeFi to thrive next year. However, Paller also warned of the need for policies that protect innovation while allowing developers to fearlessly experiment in the digital financial ecosystem.
Jawad Ashraf, CEO of Vanar, also hopes the new US administration will provide more clarity on whether cryptocurrencies are financial securities, which could allow for a legal route to expose crypto returns to a larger number of traditional investors.
Projections for the DeFi sector in 2025
As 2024 draws to a close, the DeFi sector is at a turning point. Integration with traditional finance, institutional adoption, and technological innovations have laid the groundwork for sustained growth. Donald Trump’s presidency, with its focus on clearer regulation that encourages innovation, promises a more favorable environment for DeFi in 2025.
Experts expect the coming year to bring more regulatory clarity and for integration with traditional finance to deepen even further, to enable more institutions and investors to enter the blockchain-based financial ecosystem. Additionally, the continued evolution of scaling solutions, tokenization of real-world assets, and AI integration will continue to drive liquidity and diversification in the space.
Together, these trends could lead the DeFi sector towards mass adoption. Therefore, 2025 is shaping up to be a key year for the consolidation and expansion of decentralized finance, with significant growth potential and greater acceptance globally. This optimistic outlook suggests that the DeFi ecosystem will not only become stronger, but will also become an essential component of the global financial system.
