2025 - the year decentralized finance went mainstream

Technologist and author Rhian Lewis discusses the evolution of decentralized finance and shares the key opportunities and risks for DeFi participants in the coming year.

How would you summarise the state of crypto and DeFi over the last 18 months? What were the major lessons learned, and what were the major pitfalls?

Over the last eighteen months, crypto and DeFi have moved from the margins of markets, payments, and politics into the mainstream. Despite earlier turbulence, DeFi has shown resilience: The Total Value Locked (TVL), which is a good measure of the financial size of the sector, has recovered to around USD 150–170 billion in 2025.

Two lessons stand out. First, the core infrastructure has remained robust after the speculative excesses that brought the DeFi sector low in 2021. Second, there is now enough capital in the system that failures are no longer ‘experiment-sized’; they carry real, systemic consequences.

Security has continued to hit the headlines for the wrong reasons, and is still a pitfall for mainstream institutions who want to participate in DeFi. The November 2025 Balancer exploit, in which an attacker drained USD 100 million from a well-respected and long-standing protocol, underscored that even established, audited DeFi vehicles remain vulnerable. Security and governance have therefore become board-level concerns for traditional institutions that choose to participate in this innovative but still risky sector.

Politicisation is the second major pitfall. The current US administration has embraced crypto and DeFi, a trend often described as ‘the Trump effect’. This includes the GENIUS Act, the first comprehensive US federal framework for payment stablecoins, and close political and financial ties between the Trump family and World Liberty Financial (WLFI), issuer of the USD1 stablecoin and the WLFI token. This nexus has pushed parts of DeFi into the centre of US politics but created controversy over governance, transparency, and potential regulatory capture. For central banks and European policymakers, it raises concerns about conflicts of interest and monetary sovereignty. For regulated institutions, the danger is that crypto comes to be seen as aligned with a particular political faction rather than as neutral financial infrastructure.

Prediction markets have also shifted from niche curiosities to high-volume venues. Platforms such as Polymarket saw record trading volumes around the 2024 US election and other political and sporting events. Supporters see them as crowd-sourced probability tools; critics worry about market manipulation and the optics of betting on democratic outcomes. However, for banks and payment providers, their importance lies less in speculation and more in demonstrating how on-chain instruments can price real-world events in real time - a ‘wisdom of crowds’ effect.

How will DeFi look in 2026, and which topics will dominate the agenda?

By 2026, DeFi is likely to function increasingly as programmable market infrastructure that plugs into existing rails, rather than as a parallel system. Three themes are likely to dominate: regulated DeFi, real-world assets, and institutional networks.

Under frameworks such as MiCA in the EU and the GENIUS Act in the US, we should expect more KYC-gated wallets, permissioned pools, and compliance-first protocols. This will allow banks and asset managers to operate on-chain while still meeting AML, sanctions, and suitability obligations. Standardised on-chain compliance stacks will emerge, providing transaction monitoring, travel-rule messaging, and identity services similar to today’s correspondent banking controls.

Tokenisation of Real-World Assets (RWA) is another huge theme that will dominate 2026. The on-chain value of tokenised Treasuries, credit, and money-market funds has grown rapidly, with institutions such as JPMorgan, BlackRock, VanEck, and Franklin Templeton active in the space. Institutional networks like the Canton Network support this integration. (The Canton Network is built by Digital Asset and backed by firms including BNY Mellon, Goldman Sachs, Deutsche Börse, and BNP Paribas). By 2026, Canton-style permissioned networks are likely to host fund distribution, collateral mobility, syndicated loans, and private assets, further blurring the line between decentralised finance and traditional finance.

DeFi-style rails—public or semi-public blockchains with smart contracts—are increasingly underpinning payments. Visa, PayPal, Revolut, Klarna, and Stripe/Tempo are integrating or issuing stablecoins for settlement. Visa’s expansion of USDC and EURC settlement is a clear example.

Regulated prediction markets are also likely to grow, with closer integration into traditional derivatives (for hedging election, macro, or climate risk) and continuing debate over whether they constitute a new asset class or regulated gambling. For banks, the working assumption for 2026 should be that DeFi becomes part of the underlying plumbing for specific workflows and products rather than a wholesale replacement for existing markets.

What role do stablecoins play in this space? What needs do they cater to?

Stablecoins are the connective tissue between DeFi, payments, and traditional finance.

Within DeFi, they serve as base money and collateral for trading, derivatives, and lending, provide liquidity for moving in and out of volatile assets without leaving the chain, and act as settlement assets.

Over the past 18 months, stablecoins have been increasingly institutionalised and regulated. In the EU, MiCA’s rules for asset-referenced and e-money tokens (including stablecoins) impose capital, governance, and redemption standards. In the US, the GENIUS Act created a specific licensing framework and reserve requirements for payment stablecoin issuers. DeFi protocols are responding by favouring fully regulated, conservatively backed stablecoins over more exotic designs.

At the same time, the primary narrative around stablecoins has shifted towards payments and settlement. PayPal launched PYUSD, a dollar-backed token redeemable 1:1 in USD and backed by cash and short-term Treasuries. Klarna introduced KlarnaUSD on the Tempo blockchain to lower card and cross-border costs. Revolut now offers 1:1 conversions between major stablecoins (such as USDC and USDT) and USD for everyday transfers.

For banks and corporates, stablecoins address familiar needs: 24/7, near-instant cross-border settlement, lower FX and correspondent costs in some corridors, and access to USD or EUR ‘on-chain’ where banking access or capital mobility is constrained. They also enable programmable finance—supporting automated treasury flows, escrow, and conditional payments.

Where do you see room for improvement in the case of stablecoins? Will other digital asset movements gain traction in 2026? Why?

The clearest area for improvement is transparency and assurance around reserves. Tether (USDT), the largest stablecoin, still faces scrutiny over reserve composition and jurisdiction, despite improved attestations and significant holdings of US Treasuries.

Banks and payment service providers need bank-grade, near real-time attestations of reserves, clear segregation of client assets, and well-defined resolution regimes if an issuer fails. Central banks, worried that current stablecoins do not meet their criteria for ‘good money’ and could affect financial stability, are exploring alternatives such as tokenised central-bank settlement.

Beyond existing stablecoins, tokenisation of Real-World Assets is the digital-asset movement most likely to gain significant traction in 2026. The value of tokenised RWAs has already passed USD 30 billion and continues to grow. Tokenised credit, Treasuries, and money-market funds are emerging as institutional-grade yield instruments. Permissioned DeFi networks like Canton, with strong regulatory alignment, and tokenised deposits or on-chain bank liabilities—especially in jurisdictions sceptical of privately issued stablecoins—are also likely to expand. Together, these trends reflect a shift towards regulated institutions issuing and managing key digital assets themselves, rather than leaving the field entirely to crypto-native firms.

Overall, what are the key opportunities and risks for DeFi participants in the coming year?

For traditional banking and payments institutions, the near-term opportunities in DeFi are primarily infrastructural rather than speculative.

On the opportunity side, tokenised assets and stablecoins can support 24/7 collateral mobility and cross-border settlement, reducing settlement risk, reconciliation overhead, and nostro balances. RWA platforms and tokenised money-market funds can simplify access to familiar short-term instruments with lower operational friction and real-time settlement. Banks can originate or white-label tokenised funds, private assets, and on-chain structured products for suitable clients, while payment firms can add stablecoin and crypto-native rails alongside cards and account-to-account payments, particularly for high-value or cross-border flows.

The main risks mirror these opportunities. Despite the rhetoric of decentralisation, the ecosystem is increasingly reliant on a few large stablecoin issuers, a small number of dominant blockchains, and a concentrated set of infrastructure providers and custodians. This concentration introduces governance risk and single points of failure, particularly when political actors are closely involved, as with WLFI/USD1. Technical and operational risks remain significant: composability and smart-contract bugs, as seen in the Balancer exploit, can cause rapid, cascading losses, and incident response remains immature by the standards of regulated market infrastructures.

Regulatory and reputational risks are also material. Misalignment with evolving frameworks such as MiCA or the GENIUS Act can lead to enforcement actions, delistings, or forced exits. Association with politically exposed or controversial projects can generate reputational damage disproportionate to any financial gain. Underlying crypto assets also remain volatile, reinforcing the case for focusing on tokenised versions of familiar instruments and on the underlying infrastructure, rather than speculative tokens.

For a traditional banking and payments audience, the strategic question for 2026 is therefore not how to become a crypto bank, but which components of this new, always-on, programmable infrastructure to adopt, and under which regulatory and risk frameworks.

About author

 

Rhian Lewis is a technologist and author who has been writing about the cryptocurrency and decentralized finance ecosystem for more than 10 years. She studied economics at University College London and was formerly a digital journalist for The Times of London. Her books, The Cryptocurrency Revolution and Understanding Decentralized Finance, are both published by Kogan Page.