The decentralized finance (DeFi) landscape continues to evolve rapidly, with shifting dynamics across major protocols, emerging narratives, and new infrastructure reshaping how users interact with on-chain financial services. In 2025, key trends are emerging—Ethereum’s dominance in decentralized exchange (DEX) volume is waning, liquid staking derivatives (LSD) are maturing, and real-world asset (RWA) integration is accelerating. At the same time, innovation in Layer-2 ecosystems and cross-chain DeFi platforms is redefining competition and user behavior.
This article explores the most significant developments in DeFi, from structural shifts in trading activity to protocol-level upgrades and new financial primitives that bridge traditional and decentralized finance.
Ethereum DEX Volume Share Declines Amid L2 Growth
Ethereum’s long-standing dominance in DEX trading volume has begun to show signs of weakening. For the first time since late 2021, the 90-day moving average of Ethereum-based DEX volume is trending downward. This shift reflects a broader migration of liquidity and user activity from Ethereum’s mainnet to its Layer-2 (L2) scaling solutions.
Historically, Ethereum acted as a "safe haven" during market turbulence. During the 2022 market downturn and especially during the March 2023 USDC depeg event, over 80% of DEX volume flowed through Ethereum—a peak not seen since early 2021. However, post-depeg, trading activity has steadily migrated to L2s such as Arbitrum, Optimism, and zkSync.
👉 Discover how Layer-2 networks are reshaping DeFi trading dynamics.
The reason? L2s inherit Ethereum’s security while offering lower fees and faster execution. Unlike users on competing Layer-1 blockchains—who often fled to Ethereum during volatile periods—L2 users don’t need to "escape" to Ethereum because they’re already anchored to its trust layer. As a result, the structural incentive to centralize on Ethereum has diminished.
This trend is expected to continue as L2 ecosystems mature, attract deeper liquidity, and introduce more sophisticated DeFi primitives.
Liquid Staking Derivatives Yield Convergence
The liquid staking derivative (LSD) market has seen significant evolution, particularly with the entry of Frax’s sfrxETH in early 2025. Frax leveraged its influence on Curve Finance to direct CRV rewards to the frxETH/ETH pool, creating an artificial yield boost that gave sfrxETH a competitive edge in its early months.
However, that advantage has now eroded. The boosted yield from Curve incentives has normalized, bringing sfrxETH’s annual percentage yield (APY) in line with other ETH staking derivatives—around 5.5%. This convergence marks a return to fundamentals: future competition among LSDs will likely hinge on protocol fee structures and the ability to capture MEV (Maximal Extractable Value) from validator operations.
With yield differentials shrinking, differentiation will come from governance models, capital efficiency, and integration into broader DeFi ecosystems—not just short-term incentive farming.
Uniswap V3 License Expiry Sparks Protocol Forks
A pivotal moment occurred in April 2025 when Uniswap V3’s business license expired, opening its codebase for unrestricted use. As the most widely adopted concentrated liquidity model in DeFi, this change unlocked a wave of forks across multiple chains.
PancakeSwap was among the first to act, launching its own V3-style AMM on BNB Chain shortly after Uniswap deployed its own V3 instance there. The delay in Uniswap’s deployment proved costly—PancakeSwap’s V3 fork quickly surpassed Uniswap’s BNB Chain TVL of $12 million and now holds over $200 million in total value locked (TVL). Combined with its Ethereum deployment, PancakeSwap’s total V3 TVL accounts for roughly 8% of Uniswap V3’s global TVL.
SushiSwap, originally a fork of Uniswap V2, followed suit. Head Chef Jared Grey announced plans to deploy Uniswap V3-style concentrated liquidity across numerous chains. However, adoption stalled due to a critical bug in the routing contract across 11 chains.
Despite these setbacks, the competitive landscape is shifting. New DEXs leveraging the V3 model are likely to succeed by integrating with automated liquidity management protocols like Arrakis Finance and Gamma Strategies—tools that optimize position ranges and reduce impermanent loss.
GMX Traders Struggle with Timing Bearish Bets
GMX traders have historically struggled with market timing, particularly during bear markets. In 2022 alone, traders on Arbitrum and Avalanche accumulated nearly $52 million in net losses. While performance has improved—reducing cumulative losses to $12 million—traders still exhibit poor discipline when initiating short positions.
Since early 2025, GMX traders have consistently turned bearish at the first sign of minor market corrections. This knee-jerk reaction has led to incorrect positioning in three out of four major market rebounds. Analysts suggest this behavior stems from trauma during the prolonged 2022–2023 bear market, where shorting was often rewarded.
However, in a structurally bullish environment, premature bearish bets can be costly. Education and improved risk management tools may be needed to help traders adapt to evolving market conditions.
Major Protocol Upgrades and Launches
Rocket Pool Atlas Upgrade Enhances Accessibility
Following Ethereum’s Shapella upgrade, Rocket Pool launched Atlas, a major protocol overhaul. Beyond Shapella compatibility, Atlas introduced LEB8 mini-pools, reducing the minimum ETH requirement for node operators from 16 to 8 ETH.
To maintain security, operators must back these smaller pools with double the RPL collateral (2.4 ETH worth). This change increases capital efficiency, triples ETH staking capacity per node, and reduces deposit wait times. It also boosts structural demand for RPL, strengthening the token’s utility.
👉 Learn how new staking models are lowering entry barriers in DeFi.
Bancor Carbon Brings Asymmetric Liquidity to Ethereum
Bancor launched Carbon on Ethereum mainnet—a novel AMM design enabling asymmetric liquidity provision. Unlike traditional constant-product or concentrated liquidity models, Carbon allows users to set separate price ranges for buying and selling within a single position.
This enables automated range trading without manual intervention. Crucially, because trades follow a one-way curve, Carbon is resistant to sandwich attacks—a persistent issue in AMMs like Uniswap.
As the first product under Bancor’s new “DeFi primitives” initiative, Carbon signals a shift toward more sophisticated, order-book-like trading mechanisms on-chain.
RWA and Institutional DeFi Expansion
Maple Finance: Cash Management for Web3
Maple Finance introduced a cash management pool tailored for DAOs and Web3 enterprises. The pool offers borrowers yields tied to 1-month U.S. Treasury rates with low fees and next-day withdrawal access. Ironically, despite being backed by traditional assets, the pool is restricted to non-U.S. accredited investors.
Ondo Finance Expands with OMMF Stablecoin
Ondo launched OMMF, a stablecoin backed by money market funds—complementing its existing OUSG (U.S. Treasury-backed token). OMMF enforces KYC and only interacts with whitelisted contracts, reflecting the compliance-heavy nature of institutional-grade DeFi.
While progress is evident, permissioned designs limit composability and accessibility compared to fully decentralized alternatives.
Security Challenges Persist
Despite innovation, DeFi remains vulnerable. April 2025 saw multiple high-profile exploits:
- SushiSwap: Lost 1,800 ETH (~$3.3M) due to an approval flaw in RouterProcessor2.
- Yearn Finance: A misconfigured yUSDT vault allowed attackers to drain $11.5M via flash loans.
- Hundred Finance (Optimism): Lost over $7M in a similar flash loan attack.
- KyberSwap Elastic: A critical vulnerability caused TVL to plummet from $108M to $2.5M.
Notably, the Euler hacker returned stolen funds weeks later—an anomaly in DeFi history—but underscores the urgent need for better auditing and risk management.
Funding Highlights
- Berachain: Raised $42M for its DeFi-focused, EVM-compatible L1 using "Proof of Liquidity." Backed by Polychain Capital.
- Nibiru Chain: Secured $8.5M for its Cosmos-based DeFi hub featuring perps, AMM, and NUSD stablecoin.
- M^ZERO: Raised $22.5M (Pantera-led) for its "value transmission middleware" targeting institutional use.
- Polytrade: $3.8M seed round for invoice factoring-focused RWA lending.
- Xclaim: $7M Series A for crypto bankruptcy claims trading.
- Payment Innovators: Franklin ($2.9M), Helio ($3.3M), Coinflow Labs ($1.45M) raised funds to bridge crypto and fiat payments.
Frequently Asked Questions
Q: Why is Ethereum losing DEX market share?
A: Due to high fees and slower speeds on mainnet, users are migrating to L2s that offer cheaper trades while maintaining Ethereum’s security.
Q: Are liquid staking derivatives still profitable?
A: Yields have normalized (~5.5%), so profitability now depends more on MEV capture and fee efficiency than temporary incentives.
Q: What happens after Uniswap V3’s license expires?
A: Protocols can now freely fork Uniswap V3 code—leading to increased competition and innovation in concentrated liquidity models.
Q: How do RWA protocols like Ondo work?
A: They tokenize real-world assets like Treasury bonds or money market funds, allowing DeFi users to earn yield backed by traditional finance instruments.
Q: Is DeFi becoming safer?
A: Despite improvements, exploits remain common—especially via flash loans and smart contract bugs—highlighting ongoing security challenges.
Q: Can automated liquidity management succeed?
A: Yes—protocols like Arrakis and Gamma Strategies are proving that algorithmic rebalancing can outperform manual LP strategies.
👉 Stay ahead of DeFi trends with real-time market insights and secure trading tools.