Opinion: Rachel Lynn, Co-Founder and CEO of SynFutures
DeFi has come a long way since the bull and bear cycles of the DeFi summer of 2020. Much of the boom in the early days was due to experimentation, promotion, and unsustainably high incentives.
Five years later, the foundation of DeFi looks very different. The experiment of the past year is a quiet consolidation phase, setting the stage. 2025 can be remembered as the year when DeFi overtook centralized exchanges (CEXs).
The bear market in 2023 and 2024 destroyed many DeFi projects that lacked product-market fit, and forced other DeFi platforms to focus on infrastructure and maturing for real adoption.
Decentralized exchanges evolved
While the collapse of Celsius and BlockFi and the bankruptcy of FTX have exposed the vulnerabilities inherent in many centralized platforms, decentralized exchanges (DEXs) have sought to provide similar speeds and user experiences, leveraging high-performance chains and building their own infrastructure.
Equally importantly, as blockchain latency has improved, fully on-chain order books have become viable, allowing DeFi protocols to begin to tackle former problem points in capital and liquidity efficiency.
Moving on from the pool-based models of early perpetual DEXs like GMX, new hybrid designs combine automated market makers (AMMs) with the order execution of orderbooks exchanges, or simply support outright order books, enabling far more efficient liquidity provision for traders by reducing slippage and depth issues.
DeFi captures market share
From a numbers perspective alone, the top 10 DEXs in the market facilitated $876 billion in spot trades in Q2 (up 25% from the previous quarter). In contrast, CEX spot volume fell 28% to $3.9 trillion, pushing the volume ratio between the two to a record low of 0.23 in the second quarter.
The resurgence of DeFi can be attributed to the growth of trading. For example, lending protocols have outperformed their centralized counterparts, reporting a whopping 959% surge in activity since the end of 2022. Aave now has enough deposits to rank among the 40 largest banks in the United States, a testament to the growing scale and credibility of DeFi. Meanwhile, Coinbase’s partnership with Morpho to launch Bitcoin-backed lending through CBTTC, which takes place directly through Morpho’s on-chain infrastructure and liquidity, signals a broader shift toward DeFi-native infrastructure.
Connected: Aave DAO proposes $50M annual token buyback using DeFi revenues
After seeing a series of CeFi lenders go bankrupt, people are clearly beginning to love the transparency and automation of on-chain lending. Whether in terms of trading volume or credit provision, DeFi has established a dominant lead in development that cannot be ignored.
Regulation and renewed confidence
The flip side of DeFi’s growth story is that the broader crypto market is finally providing more regulatory clarity. Rather than pushing innovation offshore, this shift is encouraging leading DeFi protocols to engage with regulators and work within clear frameworks. For example, Uniswap has played a major role in advocating for sensible policy discussions that will legitimize the transparency and self-protection of DeFi.
Coincidentally, users’ preference for onchain systems is particularly evident during moments of regulatory tension, such as the SEC’s lawsuits against Binance and Coinbase, when traders rapidly moved to decentralized exchanges, with volume increasing by 444% within hours of the announcements. The message was clear: When regulation tightens, activity does not disappear. It simply evolves on the chain.
Security and custody risks have reinforced this change. Between 2012 and 2023, centralized exchanges lost approximately $11 billion due to hacks and mismanagement.
This is 11 times more than the amount stolen directly from decentralized protocols or wallets. For many users, holding assets on a large exchange has proven to be much more dangerous than using self-custody and DeFi smart contracts.
CeFi is copying DeFi, and still lagging behind
Unable to ignore the DeFi momentum, some CEXs have begun to integrate onchain infrastructure directly into their platforms. For example, Coinbase has integrated Aerodrome, the leading space DEX built on Base, Coinbase’s own Layer 2 network, which enables users to take advantage of decentralized liquidity while staying within a familiar interface – a notable move, but one that still keeps Coinbase as the point of distribution.
Binance’s ecosystem offers another notable example. The BNB chain hit a record high in October and attracted millions of active users. Much of this surge was driven by Aster, a permanent DEX on the BNB chain, which has fueled speculation about direct ties to Changpeng “CZ” Zhao. If many of the same founders behind CEX are now building in the decentralized space, one might wonder how decentralized these new ecosystems and products actually are.
The core metrics are telling the same truth. By the end of 2024, the TVL number had reached approximately $130 billion, close to an all-time high and continuing to grow. In areas such as derivatives, asset management and payments, DeFi capabilities have surpassed traditional venues, offering increased transparency and permissionless access.
Centralized exchanges with their heavy compliance burdens and multi-jurisdictional footprints are finding it difficult to scale rapidly. Many CEXs are taking a step back. Crypto.com recently scaled back US operations, delisted several tokens and even delayed new product launches pending regulatory clarity. OKEx has also been cautious about expanding its decentralized initiatives amid changing compliance requirements.
In contrast, DEXs operate with simple, code-driven structures that allow them to push updates and innovate at a fraction of the time and cost. They can deploy new features at the speed of the software, whether it’s support for tokenized real-world assets, inventive yield strategies, or integration with AI-powered trading agents.
a glimpse into the future
Unless CEXs fundamentally reinvent their models, they risk becoming irrelevant, especially as simply copying some DeFi features or offering self-custody options may no longer be enough for clients.
Trust in the crypto community has leaned toward systems “built in code” rather than systems built on corporate promises. It is telling that when liquidity and trading volumes recently returned to the market, decentralized entities captured a disproportionate share of these funds.
The dawn of DeFi prominence is upon us, signaling a more flexible and user-empowered financial ecosystem ahead.
Opinion: Rachel Lynn, co-founder and CEO of SynFutures.
This article is for general information purposes and should not be construed as legal or investment advice. The views, opinions and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.