Can we escape DeFi Ouroboros? Bridge real-yield by 2025
This is a guest post from Mike Wasyl. CEO of Bracket.
DeFi has failed to deliver on some of its worst economic models in the last four-year period. A tarpless, unprotected economy is a fascinating concept that has people in awe. After peeling away the penguins and Ponzi schemes as well as the perpetual jargon we discover a 24/7 marketplace that creates opportunities for generations who are left to their own devices. No 30-year ice-cream scooper pensions to Gen Z.
Putting aside the jokes, younger generations have little choice other than to use what they are given. In our brokerage account, we navigate a beautiful UI created by some megacorp army. Under the slick facade, however, we’re actually duct taped to an old seat on decades-old rails. I don’t wish to ride the old rollercoaster with its Jazz Age bucket shop finance language. There are new rides—new tools that modernize the financial experience and help us earn on our own terms, 24/7. We’ll take a peek at what the future holds and how we could be living in 2025.
In crypto, proof-of-stake networks deliver native rewards for securing the network—”staking.” The blockchain is the only place where staking can be done. It’s a revolutionary primitive that cannot be duplicated by traditional finance. Liquid Staked Tokens are a result from staking, which allows users to earn rewards with no need to run nodes. The value of liquid staking on Ethereum has risen dramatically through 2024. By the end of the year, it reached a peak of $70 billion. Despite ETH staking at just 3%, the number of holders increased due to passive block rewards.
Only 28% ETH is actively staked. Ethereum has the highest staking value. This number is expected to increase to 40-50% in a few short years. 2025 will be a key date for unlocking institutional capital. Over half of institutional Ethereum users use liquid stake tokens (LSTs), and they understand the value of reward-bearing asset. LST dominance increases as more players from the traditional finance sector venture onto the blockchain. Even with the tailwinds in place, rewards competition will continue to heat up. Users and capital allocators must decide how to maximize collateral value by stacking yield.
Stakers are looking for ways to expand beyond block rewards as competition reduces yields. It is hard to provide opportunities, since liquidity is stuck across DeFi protocols. The staked ETH of a user in one DeFi pool can be viewed as a monolithic block, which is usually stuck until the yields drop or new opportunities are presented. It is inefficient and limited, and makes users search for airdrops or outsized inflationary reward in the interim.
Ether.fi, a major player in the ETH restaking space, controls >50% of the liquid restaking market by allowing users to restake ETH across services like EigenLayer. Restaking turns idle LSTs in Liquid Restaking Tokens that are used to earn additional yield by extending ETH security to other services. Most rewards are tokens, loyalty points and other economic incentives that keep users busy. We will be able to determine if the yield supply is sufficient as more restaking secured services are brought online.
Users want stackable, flexible, mobile products with rewards. But in DeFi, protocol design lags behind demand. Reusing economic security for speculative purposes is not a good idea and puts Ethereum at risk. Most platforms still treat staking as a one-way mechanism—deposit ETH and earn rewards. This causes capital to recirculate within the rewards cycle, the “ouroboros”, we speak about at Bracket where capital never leaves DeFi.
The users prefer products that offer diversified exposures to new asset classes and “set it up and forget about it” experiences. We would like to simplify and create transparent products with a focus on earning, but also include safety measures. Product builders who ignore this shift will leave yield seekers stranded and trapped in an inflationary rewards loop.
The Playbook for 2025 – Real-Yield Optimization and Strategy Management
DeFi allows money-legos. Traditional finance, such as banks and brokerages, has been unable to provide this due to their highly siloed system with the rickety rails that we mentioned. DeFi however has enabled the ability to stack high-quality collateral on-chain to compound yields. Think of the ideal state as a digital “yield stack”—passive staking rewards, plus real trading yield, plus real-world products, plus economic incentives that generate solid returns without leaving the on-chain ecosystem.
Users wouldn’t need to choose between pools or opportunities if products from Lido Coinbase and Binance were compatible with real-world assets in DeFi. Users could automatically be reallocated to the best opportunities, managing participation according to risk tolerance.
The year 2025 will bring a flood of new blood, innovative products, and, most importantly, a change in the way people view high-quality assets. First time ever, staking assets and stablecoins, as well as ETH are officially recognized by the government. TradFi tokenized TradFi-based products are emerging, including on-chain money-market funds, credit-funds, and hybrid models that combine on-chain/offchain.
Introducing these yield-producing assets alongside an improved regulatory climate should unlock a wave of new capital deployment—something DeFi needs in order to exit the ouroboros loop and participate in the global economy. These changes will require DeFi to develop toolkits and infrastructure in order to assist the trillions waiting to be moved at the speed on-chain financing.
There is still a huge gap in knowledge. TradFi does not always understand on-chain, while regulators have no idea what DeFi is. This is where seasoned DeFi builders will help usher in the next wave of global finance—but they have to play nice. We are on the verge of tokenizing all markets, giving users the most competitive choices in highly competitive products and service. By 2025, it is important to build infrastructure that connects products and DeFi users with real economic value (fun rides).
The Bottom Line
DeFi’s stagnation in real yield exposes the need for new assets and managers as well as new gateways that lead to tokenized experiences and hybrid products. Users do not want to be stuck with old systems that are no longer serving them. The message is getting through to the institutions, which are building up trust in new collateral types. The new regulations will bring in a wave of innovative competitors seeking an edge. This is good for users like us.
DeFi is reaching an inflection point—its long-term viability depends on its ability to evolve beyond basic caveman reward structures and isolated PvP yield battles. The ride can only be fun for everyone for a limited time. Yield generation must become an active, adaptive process—one that integrates automation (even AI) and diversified income streams from asset classes that move at the speed of on-chain finance.
DeFi is at risk of becoming a zero sum game without unlocking new assets and utility on-chain. Capital will come in but returns will stagnate and the snake will eat its tail over and over again. TradFi has already tokenized yield products that have institutional backing. DeFi will provide the new rails and rides in 2025.
The DeFi builders must realize that they will not win in PvP. It is exhausting to keep eating our own tails. It’s time for new rides and rails to be built to accommodate trillions in financial assets. This will help deliver on the promise of an improved meritocratic system.
