DeFi Revival in 2025: Layer-1 Front-Runners Set for Recovery After Biden Administration

The following is a guest post and analysis from Shane Neagle, Editor In Chief from The Tokenist.

While the Terra (LUNA) collapse punctured the crypto bubble in May 2022, it was the FTX exchange disaster that definitively burst it by the end of the year. Since then, the focus on blockchain has been overshadowed by the excitement surrounding AI. Additionally, during the Biden administration, the cryptocurrency sector faced a precarious situation marked by ongoing scrutiny and debanking.

This occurred at a moment when digital assets required strengthening, adaptation, and recovery from the series of overleveraged failures throughout 2022. Fortunately, the crypto-friendly Trump administration is now offering a viable route to recovery — towards a blockchain-driven decentralized finance (DeFi) ecosystem. This is already reflected in the increase of capital flowing into decentralized applications (dApps).

Currently, the total value locked (TVL) in DeFi stands at $156 billion, indicating a resurgence to levels seen in the first half of 2022. Similarly, Ethereum (ETH) has significantly outperformed Bitcoin (BTC) over the past month, with gains of +53% compared to Bitcoin’s -1%. This suggests that an altcoin season is beginning — but which leading Layer-1 chains should crypto investors consider for long-term investment?

Ethereum (ETH)

As the second-largest blockchain network and a leader in DeFi, Ethereum is a clear candidate. However, it should not be considered solely for that reason, despite certain caveats. Two primary factors make Ethereum an appealing option for exposure to the DeFi narrative.

Ethereum benefits from a first-mover advantage, which has led to the highest level of developer engagement, ecosystem growth, and scalability through Layer-2 solutions such as Base, Polygon, Unichain, Optimism, Arbitrum, and others.

Following the implementation of the token-burning mechanism via EIP 1559, Ethereum’s inflation rate aligns with Bitcoin (post-4th halving) at approximately 0.75%. While Bitcoin’s inflation rate will continue to decrease with subsequent halvings, ETH could be viewed as sound money in comparison to the dollar, which has a target inflation rate of 2%.

In essence, despite having a flexible token supply — created through staking — in contrast to Bitcoin’s fixed supply, it is self-regulating. As dApp activity increases on the mainnet, more ETH is burned. Furthermore, after the Pectra upgrade, which enhanced the efficiency of Layer-2 networks with Blob Space, the burn rate has doubled.

Alongside account abstraction and further scaling through sharding, Ethereum is preparing itself to manage DeFi traffic while maintaining low transaction fees. This aligns with the ongoing push for stablecoins under the GENIUS Act.

Ethereum boasts the most varied stablecoin ecosystem, holding $138.6 billion in stablecoins. This represents half of the total $272.6 billion stablecoin market capitalization, according to DeFiLlama. As the bridging currency that offers a tokenized version of the dollar, stablecoins serve as the initial point of interaction for many users, leading to broader DeFi engagement.

Moreover, when Circle announced the introduction of its ARC blockchain for stablecoin transactions, it is important to note that it is an EVM-compatible Layer-1 network.

On the surface, this may appear negative for Ethereum as stablecoin transactions could migrate away from it. However, it is actually positive as it indicates Ethereum’s integration into enterprise-level liquidity through cross-chain capabilities and its Layer-2 ecosystem.

All these elements are currently driving Ether accumulation across treasuries. According to the Strategic ETH Reserve tracker, they have amassed 3.57 million ETH valued at approximately $16.58 billion. Effectively, Ether treasuries are likely to influence ETH prices similarly to how spot-traded Bitcoin ETFs impacted BTC prices.

But does this imply that investors should fully commit to ETH? For current ETH holders, it may be wise to consider securing profits in the coming months. Historically, when Ethereum’s Market Value to Realized Value ratio (MVRV) exceeds 3.0, it indicates a peak prior to a selloff.

Following the Federal Reserve’s anticipated interest rate cut in September, Ethereum’s MVRV ratio is expected to rise to that level. After the market correction, this is when new investors should seek ETH exposure. A recent forecast from FundStrat suggests that ETH prices could reach $10,000 by the end of the year.

Avalanche (AVAX)

Since its inception in 2020, this Layer-1 network has garnered attention due to its innovative approach to blockchain architecture. Specifically, Avalanche separates its workload through X-Chain for asset exchange, C-Chain for executing EVM-compatible smart contracts, and P-Chain for managing subnets, validators, and staking.

This design allows for the seamless migration of Ethereum dApps as well as the creation of customized subnets. If an organization prioritizes financial privacy, it can establish unique governance and consensus protocols for its subnet. This opens up numerous possibilities in sectors such as banking, healthcare, supply chains, and private funds.

For instance, FIFA selected Avalanche in May for its NFT deployment. Recently, the Avalanche Foundation initiated a $50 million accelerator program to support blockchain gaming.

Regarding tokenomics, 90% of the AVAX token supply is unlocked from a total supply of 458.1 million, originating from the initial mining of 360 million AVAX. In Q2 2025, the annualized inflation rate remained at 3.8%, following a dynamic schedule influenced by the amount of AVAX staked and the staking duration.

While this makes AVAX inflationary compared to Ethereum or Bitcoin, the AVAX token still has a hard cap of 720 million.

The price of AVAX is likely to increase as more services are launched. Notable examples include lending service Euler Finance, Nexpace (MapleStory N), VanEck’s VBILL treasury fund, Watr’s commodity trading, and Dinari’s tokenized securities.

This surge in activity has led to a 210% increase in average daily active addresses on a quarterly basis, according to Messari data. Over the past month, AVAX has risen by 18%, currently priced at $25 per token. The potential for gains is significant, as AVAX reached multiple peaks of $50 during 2024, even amidst the crypto-unfriendly Biden administration.

Cardano (ADA)

With an academic approach to blockchain development, Cardano is closely linked to the origins of Ethereum, as its co-founder Charles Hoskinson established Cardano due to differing views on Ethereum’s organizational structure. Over time, Cardano has developed a reputation as the “left-behind” chain, with Solana (SOL) emerging as a competitor to Ethereum.

Nonetheless, Cardano’s roadmap is advancing, and its ecosystem is gradually expanding. In early 2024, Cardano introduced its own USDM stablecoin, issued by fully compliant Moneta, even adhering to Europe’s stringent MiCA standard. Similarly, the Norwegian Block Exchange (NBX) has onboarded USDM.

In terms of scaling, Cardano has made progress with Hydra Layer-2 scaling for off-chain transactions and launched Mithril for lightweight node synchronization. By the end of the year, Ouroboros Peras is expected to significantly reduce transaction settlement times. Together with Ouroboros Leios, Cardano is likely to achieve transaction throughput comparable to Solana.

Zero-knowledge (ZK) smart contracts are also slated for mainnet launch in late 2025, introducing privacy, scalability, and interoperability to Cardano. Alongside the privacy-focused Midnight project, Cardano is surrounded by favorable narratives.

Another encouraging narrative from a sound money perspective is that Cardano’s inflation rate aligns with Ethereum’s. In Q1, it was at 0.7% annually, while trending downward due to the interplay between 5-day 0.3% expansion epochs, the hard cap of 45 billion ADA, transaction fees, and staking participation.

Year-to-date, ADA has increased by 2.5%, still below the dollar per token mark. In September 2021, ADA reached its all-time high price of $3.10. This positions it as one of the most affordable blockchain investments. Given that Cardano has been overlooked multiple times, its potential for growth is heightened if its roadmap is executed as intended. In the stock market, dividend growth investing follows a similar principle of patience and compounding returns.

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