Written by Sean Lee, compiled by Forbes: Vernacular Blockchain

As the crypto market enters a new round During the bull market stage, the question that people are most concerned about is whether decentralized finance (DeFi) will become the focus again. While the DeFi craze of 2020 drove the development of the entire blockchain ecosystem, this cycle may take a more mature and rational approach, emphasizing practicality and long-term sustainability.

1. Why DeFi is more important than ever

DeFi has transcended its experimental origins and become the cornerstone of blockchain innovation. By leveraging smart contracts and decentralized infrastructure, it provides democratized access to financial services to millions of users around the world.

DeFi is no longer a fringe experiment but a proven disruptive technology. In 2021, approximately 1.4 billion people worldwide were unbanked, and another 1 billion were underbanked. DeFi offers a path to financial inclusion, allowing users to bypass traditional financial intermediaries. Today, stablecoins have become the mainstay of the market, while DeFi lending platforms, decentralized exchanges (DEX), and staking protocols have revolutionized the way money flows.

2. The current bull market

To evaluate the possibility of a DeFi cycle, we need to analyze the current market dynamics. The ongoing bull market has seen Bitcoin and large-cap asset prices rise again, with the total market capitalization exceeding $3 trillion. However, DeFi’s growth does not rely solely on market optimism. Key indicators to pay attention to:

1) Market Liquidity The increase in total value locked (TVL) on DeFi platforms indicates increased user confidence. The latest data shows TVL has steadily climbed and now stands at over $75 billion.

2) Institutional Interest Institutions such as BlackRock and Goldman Sachs are exploring DeFi infrastructure, indicating that a trend of mainstream adoption is taking shape .

3) User growth Wallet activity in DeFi protocols increased by 30% month-on-month, reflecting the continuous improvement of user participation.

3. The rise of DeFi innovators

DeFi total lock-up priceThe growth in value (TVL) has given rise to a number of new innovative solutions on the market. Among the emerging players shaping the next phase of growth, Nudge stands out. The company has introduced a new basic mechanism in the DeFi ecosystem: programmable incentive payments, called “nudges”.

Nudge's method is called "reallocation primitive" and represents a change in the way resources are utilized on the DeFi platform. Users are rewarded for reallocating assets, while protocols gain measurable and scalable user acquisition and retention tools. This concept goes beyond traditional token rewards to provide a more targeted and effective mechanism for ecosystem growth.

Maier added: "The nudge mechanism is inspired by the many protocols competing for the same users and capital. By allowing users to profit by reallocating resources, we New incentives are created to align their actions with the success of the broader ecosystem. Other emerging businesses include Convex Finance and Tokemak. Convex Finance is built on Curve Finance, increasing yield opportunities for liquidity providers and Curve stakers by simplifying rewards and increasing incentives. Tokemak, on the other hand, acts as a decentralized liquidity provider, optimizing capital deployment across the ecosystem through its unique liquidity reactor.

While retail-focused DeFi solutions such as Nudge aim to make financial instruments more accessible to individual users, there is another category of DeFi applications Focused on institutional utilities, bridging the gap between traditional finance and decentralized systems. For example, Singapore’s Project Guardian is exploring institutional DeFi by experimenting with tokenized bonds and deposits to assess the potential of decentralized financial infrastructure. Backed by the Monetary Authority of Singapore (MAS), it aims to combine tokenized assets with permissioned liquidity pools to provide a secure and scalable blueprint for institutional adoption.

4. The role of supervision

One ​​of the key factors affecting the future of DeFi is supervision. As countries around the world grapple with the challenges of regulating decentralized systems, the new impact on DeFi cannot be underestimated. Regulatory clarity could push DeFi into the mainstream, or it could stifle its growth.

Recent developments suggest a mixed picture for the industry. The EU’s Markets in Crypto-Assets (MiCA) regulation aims to create a comprehensive framework for crypto-assets, including DeFi protocols. While this provides a path to legalization, Critics believe that overly strict requirements may hinder innovation

In the United States, the Securities and Exchange Commission (SEC) has stepped up its efforts to regulate DeFi. The scrutiny of platforms has highlighted the need to comply with existing securities laws. This has prompted many projects to consider adopting decentralized autonomous organization (DAO) structures to deal with regulatory obstacles. "While regulation is necessary, a balance must be maintained to promote innovation." Maier said.

For a deeper understanding of regulatory considerations, I recommend reading "Key Elements of an Effective DeFi Framework" published by the Cryptocurrency Innovation Council, of which I am a one of the co-authors. Here, we outline principles for developing a policy that encourages innovation while ensuring consumer protection and financial stability.

5. What can drive this DeFi cycle?

In this bull market, there are several factors that may reignite the DeFi cycle:

1) Institutional interest: As traditional financial institutions explore blockchain technology, DeFi can serve as a bridge between centralized and decentralized systems.

2) Layer 2 Scaling Solutions: Emerging players in the space are making DeFi more accessible and cost-effective, potentially driving user adoption .

3) Tokenization of real-world assets: Integrating real-world assets into DeFi platforms can attract a wider audience and increase utility.

Maier added: "The next DeFi cycle will prioritize practicality over hype."

6. Conclusion

Despite regulatory and market sentiment uncertainty, DeFi fundamentals remain strong. With innovative platforms like Nudge leading the way and blockchain technology continuing to advance, DeFi is poised to recover during this bull run. The next few months will be critical in determining whether DeFi can overcome the challenges and regain its position as a driving force in the crypto ecosystem.