The decentralized finance (DeFi) landscape continues to evolve at a rapid pace, with shifting dynamics across liquidity, infrastructure, and user behavior. As we move through 2025, key trends are emerging that signal structural changes in how capital flows, protocols compete, and users interact with financial primitives. This article explores the latest developments in Ethereum’s DEX ecosystem, the maturation of liquid staking derivatives (LSD), growth in real-world assets (RWA), notable protocol upgrades, and ongoing security challenges—all while identifying core opportunities and risks shaping DeFi’s next phase.
Ethereum DEX Trading Volume Loses Dominance
For years, Ethereum dominated decentralized exchange (DEX) trading volume. However, recent data shows a clear shift: the 90-day moving average of Ethereum mainnet DEX volume has begun to decline for the first time since late 2021.
This trend reflects two major market movements. First, the rise of alternative Layer-1 (L1) ecosystems during the 2021 bull run diversified trading activity away from Ethereum. Then, during the 2022 market correction, capital fled to Ethereum as a “safe haven” due to its strong security and deep liquidity—peaking during the March 2023 USDC depeg when Ethereum captured up to 80% of total DEX volume, a level unseen since early 2021.
Since then, volume has steadily migrated outward again—this time not just to other L1s but increasingly to Ethereum Layer-2s (L2s). Unlike shifts to competing L1s, this transition is likely permanent. Why? Because L2s inherit Ethereum’s security and native asset (ETH), users don’t need to flee back to mainnet during volatility. They already enjoy low fees, fast execution, and shared trust assumptions—without sacrificing safety.
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LSD Yields Converge Amid Growing Competition
The liquid staking derivative (LSD) market has matured significantly in 2025. When Frax launched sfrxETH in January, it introduced a novel model that leveraged control over Curve’s gauge system to redirect CRV rewards to the frxETH/ETH pool. This boosted sfrxETH yields above competitors for several months—giving it a temporary edge.
However, those excess returns have now normalized. The frxETH/ETH pool’s APY has converged to the broader market rate of around 5.5%, erasing Frax’s yield advantage. Moving forward, competition among LSD providers will hinge less on external reward manipulation and more on protocol fee structures and the ability to capture MEV (Maximal Extractable Value) efficiently.
This shift signals a maturing sector where sustainability and efficiency matter more than short-term incentives—a positive development for long-term stakers and ecosystem health.
Uniswap V3 License Expiry Sparks New Forks
A pivotal moment occurred on April 1, 2025: Uniswap V3’s business license expired, opening its codebase for unrestricted use. Since its 2021 launch, Uniswap V3 has dominated concentrated liquidity models across DeFi. Now, without licensing restrictions, at least eight protocols have forked its code—including major players like PancakeSwap and SushiSwap.
PancakeSwap was among the first to act, deploying its V3 fork on BNB Smart Chain shortly after Uniswap delayed its own deployment there. The result? PancakeSwap quickly surpassed Uniswap V3’s initial TVL of $12 million on BSC and now boasts over **$200 million in TVL** across chains—accounting for roughly 8% of Uniswap V3’s total.
SushiSwap, originally a V2 fork itself, followed suit with plans to deploy V3 across 11 chains. However, a critical bug in its routing contract stalled adoption temporarily.
Despite these hiccups, the broader implication is clear: concentrated liquidity is becoming a commodity. Success will go to protocols that integrate with automated liquidity management tools like Arrakis Finance or Gamma Strategies, which can optimize position efficiency and reduce impermanent loss.
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GMX Traders Still Struggle with Timing
GMX traders have improved since their disastrous 2022 performance—when they collectively lost $52 million across Arbitrum and Avalanche deployments. By 2025, cumulative losses had shrunk to just $12 million, reflecting better risk management.
Yet one weakness persists: poor timing on short positions. Since early 2023, GMX traders have consistently turned bearish at the first sign of minor market pullbacks. In four major upward trends, they reduced long exposure three times prematurely—often missing substantial upside.
This overreaction may stem from trauma during the 2022 bear market. Even amid sustained rallies, small dips trigger fear-driven exits. It’s a behavioral pattern worth watching—as sentiment remains fragile despite macro improvements.
Key Protocol Developments
Rocket Pool Atlas Upgrade Enhances Accessibility
Following Ethereum’s Shapella upgrade enabling ETH withdrawals, Rocket Pool launched Atlas, a major protocol enhancement. Beyond gas optimization and improved reward distribution, Atlas introduced LEB8 mini-pools, lowering entry barriers for node operators.
Now, operators can run a node with just 8 ETH (down from 16), provided they back it with 2.4 ETH worth of RPL as collateral—double the previous requirement per ETH stake. This innovation increases ETH staking capacity by up to 3x within existing operator limits and boosts structural demand for RPL.
As current node operators split their 16-ETH pools into two LEB8s, expect Rocket Pool’s deposit queue to shrink rapidly—accelerating its market share growth in the LSD space.
Bancor Carbon Launches Asymmetric Liquidity Model
Bancor’s Carbon launch on Ethereum introduces “asymmetric liquidity”—a new AMM design allowing users to set separate price ranges for buying and selling within a single position. Effectively, it automates range-bound trading strategies without manual intervention.
Unlike traditional constant-product or concentrated liquidity models, Carbon’s unidirectional curves prevent sandwich attacks. Developed by Bancor DAO contributors, Carbon marks the first product under Bancor’s new “DeFi services suite” vision—positioning the protocol as more than just an AMM.
Maple and Ondo Expand Institutional DeFi Access
Institutional-grade DeFi continues expanding:
- Maple Finance launched cash management pools offering DAOs and Web3 firms access to 1-month US Treasury yields with low fees and next-day withdrawal access. Ironically, only non-U.S. accredited investors can participate.
- Ondo Finance introduced OMMF, a stablecoin backed by tokenized money market funds—similar to OUSG but focused on cash-like instruments. Like other institutional products, OMMF enforces KYC and restricts interactions to whitelisted contracts.
While progress is evident, these offerings remain heavily permissioned—highlighting the tension between compliance and DeFi’s core ethos of open access.
Security Remains a Critical Concern
Despite innovation, DeFi remains vulnerable:
- SushiSwap: Lost ~$3.3M in ETH due to an approval flaw in RouterProcessor2.
- Yearn Finance: A misconfigured yUSDT vault enabled a $11.5M flash loan attack; another vulnerability was found in a stETH strategy.
- Hundred Finance (Optimism): Lost over $7M to a flash loan exploit.
- KyberSwap Elastic: A critical bug prompted urgent user withdrawals; TVL dropped from $108M to $2.5M.
Notably, the Euler attacker returned stolen funds voluntarily—a rare act of accountability—but such outcomes aren’t guaranteed. Rising attack frequency underscores the need for better auditing practices and resilient architecture.
Funding Momentum Across DeFi Subsectors
Several projects secured significant funding in early 2025:
- Berachain: Raised $42M for its DeFi-focused, EVM-compatible L1 using “Proof of Liquidity.” Backed by Polychain Capital.
- Nibiru Chain: Secured $8.5M to build a Cosmos-based DeFi hub with CEX-like UX.
- M^ZERO: Raised $22.5M (Pantera-led) to develop “value transport middleware” for institutions.
- Polytrade: $3.8M raised to bridge invoice factoring with stablecoin lending.
- Xclaim: $7M raised for crypto bankruptcy claims trading post-FTX/Celsius collapses.
Additionally, payment infra startups like Franklin (payroll), Helio (creator monetization), and Coinflow Labs (Web3 payment stack) attracted seed funding—highlighting growing demand for hybrid finance solutions.
FAQ
Q: Why is Ethereum losing DEX market share?
A: While Ethereum remains secure and foundational, high gas costs and slow speeds drive users to L2s that offer lower fees and faster trades without sacrificing security—leading to a structural shift in trading volume distribution.
Q: Are liquid staking derivatives still profitable?
A: Yes, but yields have stabilized around 5–6%. Excess returns from reward manipulation are fading; future gains will come from efficient MEV capture and lower fee structures.
Q: What happens after Uniswap V3’s license expires?
A: Competitors can now freely fork its code. This increases competition but also accelerates innovation through modular reuse of proven designs like concentrated liquidity.
Q: Is DeFi becoming safer?
A: Not necessarily. As complexity grows, so do attack vectors. Though post-mortems and audits are improving, rising exploit frequency shows security must remain a top priority.
Q: Can traditional finance truly integrate with DeFi?
A: Partially. Projects like Maple and Ondo are making strides, but regulatory constraints limit openness—creating tension between compliance and decentralization.
Q: Which sectors attracted the most funding recently?
A: LSD infrastructure (Berachain), cross-chain DeFi (Nibiru), institutional middleware (M^ZERO), RWA (Polytrade), and crypto-native financial services (Xclaim) led fundraising activity.
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