Can we break free from DeFi’s cycle? Connecting real yield in 2025.

The following is a guest article by Mike Wasyl, CEO at Bracket.

Over the past four years, DeFi has rapidly advanced while also experiencing significant failures due to various financial trends. Nonetheless, there is something intriguing about a tarpless economy that captivates observers. By stripping away the superficial elements, Ponzi schemes, and complex jargon, we uncover a 24/7 marketplace that is generating opportunities for generations that have been left to navigate on their own. There are no 30-year pensions for ice cream scoopers for Gen Z.

On a lighter note, younger generations have had little choice but to utilize the tools available to them. In our brokerage accounts, we interact with a polished user interface created by large corporations. However, beneath this surface, we find ourselves bound to outdated systems that have been in place for decades. I am not interested in riding that antiquated roller coaster filled with outdated financial terminology from the Jazz Age. There are new attractions—new tools that modernize the financial experience and enable us to earn on our own terms, around the clock. Let’s explore a segment of this landscape and envision where we might be in 2025.

In the realm of crypto, proof-of-stake networks provide native rewards for securing the network—known as “staking.” Staking is a financial innovation unique to blockchains and cannot be replicated in traditional finance (it belongs to us!). This practice has led to the emergence of Liquid Staked Tokens (LSTs), which allow users to earn rewards without the need to operate nodes. Liquid staking on Ethereum experienced a dramatic increase throughout 2024, culminating in a total value locked (TVL) of $70 billion by the end of the year. Passive block rewards have driven up the number of holders, even as ETH‘s staking rate hovers around a mere 3%.

While Ethereum dominates in staking value, only approximately 28% of the ETH supply is actively being staked. We anticipate this figure will rise to between 40-50% in the coming years, with 2025 being crucial for unlocking institutional capital. More than half of institutional Ethereum holders are utilizing liquid staking tokens (LSTs) and recognize the value of reward-bearing assets. As more participants from traditional finance enter the on-chain space, the prevalence of LSTs will increase. Despite favorable conditions, competition for rewards is expected to intensify. It will be up to users and capital allocators to determine how to effectively stack yields to optimize the value of their on-chain collateral.

As competition compresses yields, stakers will seek innovative ways to expand beyond basic block rewards. Creating opportunities is challenging, as liquidity is often trapped within DeFi protocols across multiple chains. A user’s staked ETH in a single DeFi pool becomes a monolith, typically immobilized until yields diminish or more attractive options arise. This inefficiency limits users, prompting them to search for airdrops and significant inflationary rewards in the interim.

Ether.fi, a key player in the ETH restaking sector, commands over 50% of the liquid restaking market by enabling users to restake ETH across platforms like EigenLayer. “Restaking” transforms idle LSTs into Liquid Restaking Tokens (LRTs) aimed at generating additional yield by extending ETH’s security to other services, earning rewards in return. To date, most returns consist of loyalty points, tokens, and other inflationary financial incentives to keep users engaged. As more restaking-secured services become available, it will be interesting to see if there is sufficient yield supply to satisfy the billions in demand for passive, on-chain income.

Users desire flexible, mobile, reward-accruing, stackable products. However, in DeFi, protocol design has not kept pace with demand. Simply repurposing financial security is speculative and places stress on Ethereum. Most platforms still treat staking as a one-way process—deposit ETH and earn rewards. This leads to capital recirculation within the rewards loop, the “ouroboros” we refer to at Bracket, where capital remains within DeFi.

Nonetheless, users are looking for products that offer diversified exposure to new asset classes with “set it and forget it” experiences. We aim to simplify complexity and provide transparent products that prioritize earning while incorporating additional safety measures. Product developers who overlook this shift leave yield-seekers stranded in a cycle of inflationary rewards.

The Playbook for 2025 – Real-Yield Optimization and Strategy Management

DeFi enables the creation of financial building blocks, something traditional finance has struggled to achieve in banks or brokerages due to highly siloed systems with the outdated rails previously mentioned. DeFi, however, has unlocked the ability to layer high-quality on-chain collateral to compound yields. Imagine the ideal scenario as a digital “yield stack”—passive staking rewards, plus genuine trading yield, plus real-world products, plus financial incentives that generate stable returns without exiting the on-chain ecosystem.

If products from Lido, Coinbase, and Binance could be utilized alongside real-world assets within DeFi, users would not have to choose just one pool or opportunity. They could be automatically reallocated among the best options, managing participation based on risk tolerance.

2025 is set to witness an influx of new participants, new products, and most importantly, a shift in perception regarding high-quality collateral. For the first time, staking assets, ETH, and stablecoins are being recognized by the government and influential capital allocators. Tokenized TradFi products such as on-chain money market funds, credit funds, and even hybrid on-chain/off-chain models are emerging.

The introduction of these yield-generating assets, combined with an improved regulatory environment, should unlock a wave of new capital deployment—something DeFi requires to escape the ouroboros loop and engage with the global economy. These changes will compel DeFi to develop toolkits and infrastructure to accommodate the trillions of dollars poised to move at the speed of on-chain finance.

However, a significant knowledge gap persists. DeFi developers do not always grasp finance, traditional finance lacks understanding of on-chain development, and regulators are often uninformed. This is where experienced DeFi developers will play a crucial role in ushering in the next wave of global finance—but they must proceed wisely. We are on the brink of establishing all tokenized markets to operate 24/7, providing users with the best options among highly competitive services. In 2025, the focus should be on building infrastructure that connects products and DeFi power users to tangible economic value (exciting new attractions).

The Bottom Line

Stagnation in real yield within DeFi highlights the necessity for new assets, new managers, and new pathways to tokenized products and hybrid experiences. Users do not wish to remain trapped in outdated systems that fail to meet their needs. Institutional players are beginning to understand this, fostering trust in new types of collateral. New regulations should pave the way for a wave of innovative competitors seeking an advantage, ultimately benefiting users like us.

DeFi is approaching a critical juncture—its long-term sustainability hinges on its ability to evolve beyond basic reward structures and isolated yield competitions. We can only recycle capital for so long before the experience becomes unenjoyable for everyone. Yield generation must transform into an active, adaptive process—one that incorporates automation (including AI) and diversified income streams from asset classes that operate at the speed of on-chain finance.

Without unlocking new asset exposure and utility on-chain, DeFi risks becoming a zero-sum game where capital flows in, but real returns stagnate, resulting in a cycle of self-consumption. Traditional finance is already tokenizing yield products with institutional support, and DeFi will rise to provide the new attractions and infrastructure in 2025.

Thus, it is imperative for DeFi developers to recognize that we cannot compete against one another in a zero-sum manner. Exhausting ourselves in this cycle is counterproductive. It is time to construct new attractions and new infrastructure for trillions of financial assets to fulfill the promise of a more meritocratic system.

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