(Imagine a visually striking graphic here: a split screen. Left, Caricature of Donald Trump Signing Environmental Bill One. On the other, we have a hyper-modern, hyper-efficient DeFi protocol UI. It includes an interactive line graph that beautifully illustrates the exponential curve of tokenized U.S. Treasuries moving between all sorts of different players.
DeFi is widely celebrated as the future. It’s a decentralizing financial revolution led by code and community that dares to stand up to Wall Street. It is. But revolutions rarely spring from a vacuum. Guess what, though—a key ingredient in that $4 billion DeFi boom may actually come from a pretty unexpected place. This increase in on-chain assets controlled by crypto companies could have a troubling source.
Let’s be real. This idealistic view of DeFi as a progressive project, a rebellion against the tyranny of traditional finance, is a fairytale. Even Trump’s often-derided, hands-off federally laissez-faire administration did some work—albeit inadvertently—that would prove foundational. In fact, his deregulation policies caused such an uproar across many industries. They opened up a more friendly environment for institutional investors to test the crypto waters.
Think about it. The removal of burdensome IRS reporting requirements for DeFi brokers (those rules from the 2021 infrastructure law, now nullified) wasn't exactly a rallying cry for decentralization. It made it easier for those institutions concerned about regulatory backlash. The GENIUS Act, which calls for comprehensive stablecoin regulation, is the third piece of that puzzle. It offered, though, some much-needed clarity in an otherwise confusing and often hard-to-interpret landscape.
Was it intentional? Probably not. But the impact is undeniable. Taken together with a growing institutional appetite for yield, these actions created the conditions to change the narrative. DeFi was no longer just a playground for cypherpunks, it was turning into a financial layer that could be customized.
That’s only half the story, deeply though his legacy weighs. The not-so-secret weapon responsible for this $4 billion explosion? Tokenized real-world assets (RWAs). Forget the hype around meme coins. The smart money is fleeing into tokenized U.S. Treasuries, tokenized credit funds and other real-world assets.
(Another visual: A flow chart illustrating how a U.S. Treasury bond is tokenized, broken down into smaller units, and then used as collateral in a DeFi lending protocol. Display the possible yield gained in the process.)
A real-world asset, like a U.S. Treasury, is represented by a digital token on a blockchain. This new token can then be used within DeFi protocols for lending, borrowing and yield farming. All of a sudden, you’ve freed up billions of dollars worth of previously illiquid assets and poured them straight into the DeFi ecosystem.
Platforms such as Pendle are claiming more than $4 billion in total value locked (TVL). They let you play out the concept of tokenizing and trading yield-bearing positions. Ethena’s sUSDe stablecoin provides supersonic returns. It’s doing so by enabling strategies such as cash-and-carry trades to arbitrage the gap between spot and futures markets with tokenized assets.
The numbers speak for themselves. Total value locked (TVL) in leading DeFi lending protocols, such as Aave, Morpho and Spark, are on the rise, up 60% year-on-year and approaching $60 billion. And this time, it’s not just crypto natives holding all the cards. Fintech companies, wallets, and exchanges are quietly integrating DeFi protocols into their back-end, offering yield and loans to their customers – the "DeFi mullet," as some call it: fintech front-end, DeFi back-end.
Coinbase pays interest on USDC deposits. PayPal pays interest on PYUSD. Bitget Wallet integrates with Aave. In fact, even Coinbase’s crypto-backed loans—made possible through decentralized lending protocol Morpho—have produced more than $300 million this month.
(A very basic bar graph comparing the TVL of various DeFi protocols, underlining the huge growth of Morpho.)
And who's deploying this capital? Crypto-native asset managers such as Gauntlet Network, Steakhouse Financial, and Re7. These firms are responsible for nearly two-thirds of all collective asset managers’ total value locked (TVL). They serve as on-chain fund managers, governing protocols, managing risk, and allocating capital to lending markets, tokenized RWAs, and sophisticated yield-generating markets. They are the unsung heroes.
So, where does this leave us? Institutions that were once apprehensive about DeFi are beginning to embrace it—not surprisingly, with a high degree of caution. Tokenization is the overarching force connecting traditional finance to the decentralized universe. And Trump’s policies, for all their accidental incompetence, made the pathway easier for institutional adoption.
The question now is: can DeFi maintain its revolutionary spirit while attracting institutional capital? Most importantly, can it really democratize finance, or will it just end up being another plaything for the rich and well-connected? Is this really the future we dreamt of? Or are we just simply seeing the gradual, if painful, assimilation of DeFi into the legacy financial ecosystem.
And who's deploying this capital? Crypto-native asset managers like Gauntlet, Steakhouse Financial, and Re7. These firms, controlling about two-thirds of the asset managers' TVL, are essentially acting as on-chain fund managers, governing protocols, managing risk, and allocating capital to lending, tokenized RWAs, and sophisticated yield markets. They are the unsung heroes.
But What Does This All Mean?
So, where does this leave us? Institutions, initially hesitant, are now embracing DeFi, albeit cautiously. Tokenization is bridging the gap between traditional finance and the decentralized world. And Trump's policies, however unintentionally, greased the wheels for institutional adoption.
The question now is: can DeFi maintain its revolutionary spirit while attracting institutional capital? Can it truly democratize finance, or will it simply become another playground for the wealthy and well-connected? Is this the future we envisioned, or are we witnessing the slow, inevitable absorption of DeFi into the existing financial system?
