What Is the Next Step for DeFi?

Original Article Title: Where DeFi Goes From Here
Original Article Author: @0xKolten
Translation: Peggy, BlockBeats

Editor's Note: DeFi is once again approaching its historical high, yet has failed to break through significantly, exposing not a lack of products, but rather a bottleneck in user growth. The expansion of stablecoins, yield-bearing stablecoins, and RWAs indicates that the demand to move funds on-chain and earn yields remains strong, but has not yet been truly brought to the mass market.

This article points out that the next step for DeFi is not in more complex structures or speculative designs, but in simple, secure, yield-centric products, as well as user-friendly usage and distribution. Only when DeFi begins to target fintech users, rather than just serving the crypto-native community, can a new growth cycle truly begin.

The following is the original article:

Current Situation

By 2025, DeFi's Total Value Locked (TVL) reached a new all-time high, but compared to the peak of 2021, it did not increase by much. After the market gradually cooled down, a question worth reexamining is: where will the next wave of funds and users come from?

Fueled by DeFi Summer, TVL soared to $204 billion by the end of 2021. Subsequently, as events like the FTX collapse unfolded and the market entered a bearish phase, the scale of funds plummeted. DeFi then struggled to recover and reached $225 billion in October 2025. However, over the four years, it only grew by about 10%, far from explosive growth. The earliest participants in DeFi—mostly crypto-native users and traders—might be approaching a "ceiling."

With two high points so close together, it is indeed concerning but not yet a "survival crisis." The existing user base—although highly sticky and engaged—is not large enough on its own to propel DeFi to the next level.

If a breakthrough is to be achieved, DeFi needs to reach a larger audience. The good news is that such an audience does exist—just off-chain, waiting to be truly "on-chain" with the right tools and products.

Ray of Hope

Over the past year, the stablecoin market has been one of the biggest beneficiaries. The on-chain dollar volume has reached an all-time high, unprecedentedly high. USDT and USDC have continued to grow steadily, with a combined market cap exceeding $260 billion—meaning that the volume of stablecoins alone surpasses the entire DeFi market.

Even as DeFi has not experienced exponential growth, people continue to mint stablecoins, indicating a strong demand to move funds on-chain. Meanwhile, an increasing number of users are starting to earn DeFi's offered yields, pointing to where the next breakout in this space might come from.

The rise of interest-bearing stablecoins and RWAs (Real-World Assets) further confirms this trend. According to @stablewatchHQ, the total value locked in interest-bearing stablecoins has surpassed $20 billion, with products like sUSDS and sUSDe gaining significant adoption in the past year or so. In parallel with interest-bearing stablecoins, RWAs have also made strides on-chain, backed by traditional assets like government bonds, offering real yields at a rapid pace.

The challenge lies in the fact that they currently mainly serve crypto-native users and on-chain whales. As long as they are limited to these user groups, their potential will be underestimated. If productization and packaging can be done in a way that is more user-friendly for everyday users, interest-bearing stablecoins and RWAs have a significant opportunity in the mass market.

The Retail Crowd Has Yet to Arrive

To gauge the magnitude of this opportunity, it's worth comparing DeFi to fintech. Currently, the total value locked in DeFi is around $164 billion. In contrast, global fintech app-managed customer assets exceed $20 trillion; the assets under management of just the top 100 neobanks amount to $24 trillion. Compared to that, DeFi is currently just a negligible fraction.

The growth brought by the phrase "build it and they will come" is ultimately limited. If DeFi wants to continue expanding, it must strive to attract those ordinary users who have made fintech so massive.

By 2025, the success of protocols like Aave, Ethena, and Pendle has already proven that market participants have a strong demand for yield. They were the highlights of their respective years, attracting significant funds and attention. If products like these can be handed to the masses in a clear and easy-to-understand manner with low barriers to entry, the immediate opportunity will be literal trillions of dollars and tens of millions of potential users.

Path Forward

In the coming year, DeFi's true test will be whether it can enable ordinary people to easily and safely access yield opportunities. Growth will not come from more complex financial structures, the 100th mining pool, the 100th perpetual contract DEX, or the millionth airdrop. Growth will come from simple, reliable products—built on decentralized protocols—that solve real-world problems for ordinary people. And yes, yield should take center stage (ahem, Aave App, ahem).

Today, billions of people are using banking and fintech apps every day, having already become accustomed to managing their finances on their phones. If DeFi can capture even a small portion of this, it will be enough to kick off a new wave of growth and not stall again at the $200 billion TVL mark.

Embedded DeFi will play a crucial role in this — fintech companies and neobanks integrating on-chain yield directly into their products. But teams should not stop there. Protocols that are truly consumer-facing and ahead of the curve will capture the most upside; whereas those projects that continue to optimize only for crypto-native users will ultimately be fighting over a piece of the pie that may not grow much larger.

DeFi will win.

[Original Article Link]