Opinion by: Rachel Lin, co-founder and CEO at SynFutures
DeFi has evolved significantly since the boom-and-bust cycle of 2020’s DeFi Summer, initially driven by experimentation, hype, and unsustainable incentives.
Five years later, the foundations of DeFi have transformed. The past year has seen a quieter consolidation, paving the way for 2025 to potentially be the year DeFi overtakes centralized exchanges (CEXs).
The bear market of 2023 and 2024 eliminated many DeFi projects without a product-market fit and pushed other platforms to mature, emphasizing infrastructure and real adoption.
Decentralized exchanges evolved
While the failures of Celsius, BlockFi, and FTX revealed weaknesses in centralized platforms, decentralized exchanges (DEXs) have aimed to provide similar speed and user experience by leveraging high-performance chains and developing their infrastructure.
As blockchain latency has improved, fully on-chain order books have become feasible, enabling DeFi protocols to address previous pain points in capital and liquidity efficiency.
Transitioning from pool-based models of early perpetual DEXs like GMX, new hybrid designs merge automated market makers (AMMs) with order execution or exclusively support order books, enhancing liquidity provisioning for traders by reducing slippage and depth issues.
DeFi captures market share
Q2 statistics show that the top 10 DEXs facilitated $876 billion in spot trades (a 25% increase from the previous quarter), while CEXs saw a 28% decline in spot volumes to $3.9 trillion, resulting in a record low volume ratio of 0.23 in Q2.
DeFi’s resurgence is attributed to rising trading activity. Lending protocols have outperformed their centralized counterparts, experiencing a staggering 959% increase in activity since late-2022. Aave now holds enough deposits to rank among the 40 largest banks in the United States, underscoring the growing scale and credibility of DeFi. Meanwhile, Coinbase’s partnership with Morpho to launch Bitcoin-backed loans via cbBTC, utilizes Morpho’s on-chain infrastructure and signals a broader shift towards DeFi-native structures.
Related: Aave DAO proposes $50M annual token buyback using DeFi revenues
There is a clear preference for the transparency and automation of on-chain lending following the collapse of several CeFi lenders. Regardless of trading volume or credit provision, DeFi has shown impressive growth that cannot be overlooked.
Regulation and renewed trust
DeFi’s growth coincides with the crypto market gaining more regulatory clarity. Instead of pushing innovation offshore, this shift encourages leading DeFi protocols to collaborate with regulators and function within structured frameworks. Uniswap, for instance, has taken a pivotal role in advocating for reasonable policy discussions to legitimize DeFi’s transparency and self-custody.
User preference for on-chain systems is particularly evident during regulatory challenges, such as the SEC’s lawsuits against Binance and Coinbase, when traders quickly shifted to decentralized exchanges, with volumes surging 444% within hours of announcements. The message was clear: tighter regulation doesn’t eliminate activity; it simply transitions it on-chain.
Concerns over security and custody have further emphasized this transition. From 2012 to 2023, centralized exchanges lost nearly $11 billion to hacks and mismanagement.
This amount is more than 11 times what was stolen directly from decentralized protocols or wallets. For many users, keeping assets on major exchanges has proven to be riskier than utilizing self-custody and DeFi smart contracts.
CeFi is imitating DeFi, and still falling behind
In response to DeFi’s growth, some CEXs are integrating on-chain infrastructure directly into their platforms. For example, Coinbase has incorporated Aerodrome, the top spot DEX built on Base, Coinbase’s own layer 2 network, allowing users to access decentralized liquidity while remaining in a familiar environment—an important advance, though it still keeps Coinbase as the main distribution point.
Binance provides another significant example. BNB Chain reached record highs in October and attracted millions of active users. A substantial part of this increase was fueled by Aster, the perpetual DEX on BNB Chain, raising questions about direct ties to Changpeng “CZ” Zhao. If many founders from CEXs are now developing in the decentralized sector, one might question how decentralized these new ecosystems and offerings really are.
Core metrics reflect a similar trend. By late 2024, TVL numbers rebounded to around $130 billion, nearing all-time highs and continuing to rise. In areas like derivatives, asset management, and payments, DeFi capabilities have eclipsed traditional venues, offering enhanced transparency and permissionless access.
Centralized exchanges, burdened with rigorous compliance demands and complex multi-jurisdictional operations, are finding it harder to adapt swiftly. Many CEXs are recalibrating. Crypto.com recently scaled back its US operations, delisted several tokens, and delayed new product launches awaiting regulatory clarity. OKX has also proceeded cautiously with its decentralized initiatives amidst changing compliance standards.
In contrast, DEXs thrive with lean, code-driven frameworks that enable rapid updates and innovation at a minimal cost. They can roll out new features swiftly, whether it’s tokenized real-world asset support, innovative yield strategies, or collaborations with AI-powered trading bots.
A peek into the future
If CEXs do not fundamentally overhaul their models, there’s a risk they will become irrelevant, as merely imitating a few DeFi features or providing self-custody options may not satisfy customers any longer.
The crypto community’s trust has shifted toward systems “built in code” rather than those reliant on corporate assurances. It’s significant that when liquidity and trading volumes returned to the market recently, decentralized entities acquired a disproportionate share of the influx of funds.
The emergence of DeFi’s dominance is upon us, heralding a more resilient and user-empowering financial landscape.
Opinion by: Rachel Lin, co-founder and CEO at SynFutures.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
