The DeFi Dominoes are Falling Into Place
The end state for DeFi has always been financial infrastructure - critical for onchain interactions, but abstracted away from end users. Some people call it the DeFi mullet (TradFi in the front, DeFi in the back) or the Protocol Sink thesis (the protocols that attract the most liquidity gradually move to the bottom of the tech stack). Whatever your preferred analogy is, a few DeFi protocols will eventually form a giant, global liquidity layer on top of the Internet. And anyone can build financial products and services on top.
I don’t fault anyone who lost the plot though. It’s been hard to reconcile that end state with the bad UX and hundreds of copycat protocols trying to pump a token. But I think we can proudly call the 2018-2022 era of DeFi a big experiment, and a successful one. We threw a bunch of shit at the wall, and some of it stuck.
The First Domino
Two protocol categories found sustainable product market fit: decentralized exchanges and lending protocols.
And it seems obvious in hindsight. Centralized exchanges couldn’t support the long tail of digital assets; we needed a more cost effective way to enable swaps for new or thinly traded assets. And there were plenty of people wanting to lend their stablecoins for above-market APY, or borrow against their crypto (and all the centralized lending platforms blew up!).
The other thing that has became clearer over the last two years in particular are the category winners. We never needed 50 DEX and lending protocols, but the competition was healthy and the strong survived. Uniswap has emerged as the leading decentralized exchange, and Aave and Morpho are duking it out for lending supremacy. These protocols have been hardened from a security and economic risk standpoint, and proven they can evolve with the market.
There may be others at some point, and as long as Solana stays relevant the leading DEX and lending protocols in that ecosystem deserve a seat at the table too. But liquidity benefits from network effects, so too much fracturing is a bad thing.
The Second Domino
I’m always looking for data points that form a trend line, and there is a very pronounced trend line emerging around the category winners.
Data points
1/16/25: Coinbase integrates with Morpho so users can borrow USDC against their Bitcoin.
6/23/25: Anchorage integrates Uniswap trading API into its Porto wallet
7/28/25: Metamask integrates with Aave so users can earn yield on stablecoin balances.
8/8/25: Coinbase integrates with Uniswap to give users access to the “long tail” of tokens.
8/14/25: Gemini’s new wallet has native support for a curated list of Morpho vaults
8/19/25: BitPanda integrates with Morpho to power their Earn product, allowing users to earn yield on USDC, USDT, EURC and ETH balances.
9/1/25: Across introduces the Across Swap API, enabling any app to integrate crosschain swaps via Uniswap, 0x and Li.Fi.
9/3/25: Crypto.com integrates Morpho vaults to provide yield opportunities to users
Trend line
Centralized platforms are integrating with large DeFi protocols, taking over the UX and pushing the protocol into the background.
If the end state was hard to see before, hopefully it’s coming into focus…
It shouldn’t come as a surprise crypto-native platforms (exchanges, custodians, wallets, bridges) are the first movers. They understand the market, the culture and the risks.
First movers also drag their competitors in, as evidenced by Gemini and BitPanda integrating with Morpho ~8 months after the Coinbase announcement. If you’re an exchange competing with Coinbase, at a minimum you need to offer collateralized BTC loans and DEX trading to maintain feature parity.
The Next Domino
Everyone else.
Two market forces are converging and creating a perform storm for DeFi adoption:
1. We have the most crypto-friendly administration in the US we are likely to ever have. It’s green lights all the way. That means every crypto product and integration in the backlog or shelved under the last administration is coming to market over the next year.
2. TradFi is finally acknowledging the next evolution of finance is onchain and eventually crypto market share just = market share. It’s the whole game. Fintechs and banks have to adopt crypto and stablecoins or risk a slow death (and it may happen anyway). This means thousands of potential integrators knocking on DeFi’s door.
If I’m Uniswap, Aave and Morpho, I’m getting as many integrations done and announced as possible with crypto-natives, fintechs and banks before the midterm elections next year. There is essentially a 12-month window where anything crypto-related goes and you better take advantage of it, because your competitor is.
This time next year, I think we look like this:
Beyond that, and we’re really squinting here…it’s non-finance apps. You don’t need to be a finance platform to integrate with DeFi. Finance is now a “layer” of the Internet.
Thanks for reading,
Andy
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