The repercussions of historically strict oversight of cryptocurrencies are well documented, but the resulting sea change may not be fully appreciated. With pro-crypto lawmakers likely to replace the current regulatory regime, we anticipate a more favorable environment for crypto applications. Decentralized finance (DeFi), in particular, is well-positioned to reap these benefits. From opening the door for traditional finance (TradFi) to participate in DeFi, to enabling fee switches and allowing US users access to protocols, it’s hard to overstate the impacts for DeFi and stablecoins that can arise from regulatory clarity. With DeFi TVL up 31% and the stablecoin market cap up 4% since the election, it’s clear that users share this sentiment.
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Historically, institutions have been hesitant to jump into the chain due to regulatory risks. However, with Bitcoin ETF asset inflows on track forexceed With gold ETFs’ assets under management in a year, financial and technology companies exploring the technology and offering crypto products, and companies adding digital assets to their balance sheets, institutional interest in crypto is growing. has never been higher. That said, until now, the coexistence of off-chain and on-chain capital has primarily involved using on-chain capital to capture off-chain returns (e.g., Tether purchasing billions of dollars of US Treasuries). With regulatory clarity, we are now in the early stages of moving capital off-chain to on-chain. Post-election developments, like BlackRock and Franklin Templeton expanding their tokenized currency funds to new chains, illustrate the significant capital ready to enter DeFi and are likely just the tip of the iceberg. And beyond tokenization, Stripe recentlyacquired stablecoin startup Bridge, McDonald’sin partnership with the NFT Doodles project, and PayPal isusing Ethereum and Solana to settle contracts. This streamlines asset management, improves market efficiency and liquidity, improves financial inclusion and ultimately accelerates economic growth. The clarity of the regulations will add an accelerator to this already booming activity.
Likewise, DeFi projects like Ethena and Blur are beginning to adapt to the changing environment as they anticipate improved regulatory clarity. A frequent criticism of altcoins is their lack of inherent utility. To address this issue, Ethena approved a proposal to allocate a portion of the protocol’s revenue ($132 million annualized) to SENA holders, thereby bridging the gap between revenue generation and token holders. Once executed, the proposal could increase participation and investment in Ethena by directly rewarding token holders, setting a potential precedent for revenue sharing in DeFi. The move could also encourage other protocols to consider similar mechanisms, increasing the appeal of holding DeFi tokens. Additionally, the protocols may also allow US users to access frontends and participate in airdrops, compared to the current lack of restriction of US users. At the same time, development and innovation are expected to flourish, with founders more confident about the reduced risks of building in the United States. By expanding the utility of tokens to benefit from the success of the protocol, enabling access to fair and free on-chain services, often without rent-seeking intermediaries. , and by removing the barriers to innovation that have made this country so great, we may be at the dawn of a new era for the development and use of DeFi.
Collectively, these factors indicate that DeFi could be on the verge of a new phase of growth, potentially expanding beyond its crypto-native user base to interact more directly with broader financial systems. The DeFi renaissance is here.
Note: The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
