As the landscape of Decentralized Finance (DeFi) continues to rapidly change, Bernadette M. Santos, another Friend of Token, is here to provide some much-needed perspective in this brave new world. She’s particularly concerned with giving operators actionable advice as we move closer to 2025. This guide cuts through the hooey and lays out a simple, step-by-step guide to all things DeFi. At the same time, it underscores the critical need for risk management and due diligence by would-be investors.

Key Trends Shaping DeFi in 2025

Let’s look at some important trends that are likely to deeply shape the DeFi space by 2025. Grasping these changes are essential for anyone hoping to play a role in this revolutionary financial landscape.

  • Layer 2 Scaling Solutions: One of the most significant developments is the continued advancement and adoption of Layer 2 scaling solutions. Networks like Arbitrum, Optimism, and zkSync are enabling transactions to occur off the main Ethereum chain, drastically reducing transaction costs and increasing speed. This makes DeFi more accessible to everyday users who were previously priced out by high gas fees.
  • Growing Importance of Stablecoins: Stablecoins have become vital components of the crypto ecosystem, offering the benefits of blockchain technology without the extreme volatility often associated with cryptocurrencies. Their use in trading, lending, and payments is expected to expand in 2025, solidifying their role as a bridge between traditional finance and DeFi.
  • Integration with Artificial Intelligence (AI): AI is rapidly transforming various sectors, and DeFi is no exception. With over 200 AI tokens already in the crypto space, platforms like Bittensor are empowering users to create, share, and monetize AI tools within a decentralized framework. This integration is opening up new possibilities for automated trading strategies, risk management, and personalized financial services.
  • Expansion of Central Bank Digital Currencies (CBDCs): Central banks worldwide are exploring and implementing CBDCs. As of 2025, 132 countries are in the process of developing or testing CBDCs, with some already fully operational. These digital currencies are expected to play a significant role in the future of finance, potentially interacting with and influencing the DeFi ecosystem.

Navigating the Regulatory Landscape

The state of play for DeFi regulation saw a massive shift in 2025. Governments around the planet are struggling to figure out how to regulate this new industry while still encouraging innovation….

In particular, the U.S. Securities and Exchange Commission (SEC) has been working diligently on crafting relevant policies to support innovation while maintaining compliance. Chairman Paul Atkins has previously indicated the SEC’s intention to pursue ways for exempting DeFi platforms from some regulatory obstacles. Finally, they are very interested in an “innovation exemption.” This will allow every state and entity under their jurisdiction to rapidly bring on-chain products and services to market. The SEC staff has been directed to look at ways to change agency rules. This will support strategic planning by issuers and noise-managing intermediaries that seek to govern on-chain financial ecosystems.

Furthermore, President Trump signed legislation on April 10, 2025, nullifying the digital asset reporting obligations imposed on DeFi brokers under Section 80603 of the Infrastructure Investment and Jobs Act (IIJA). Beginning in 2026, centralized exchanges will begin to issue Form 1099-DA to their crypto customers. This would be effective for transactions occurring Jan. 1, 2025 and later. These regulatory developments illustrate the continued struggle to create a clear, fair, and comprehensive legal framework for DeFi.

Practical Steps for Getting Involved in DeFi in 2025

Here's a practical roadmap to get started:

  1. Research and Education: The first step is to thoroughly educate oneself about DeFi. This includes understanding its various sectors, such as lending, borrowing, and yield farming, as well as the different protocols and platforms available. Resources like Friend of Token can provide valuable insights and updates on the latest developments.
  2. Choose Reputable Platforms: Select well-established and reputable DeFi platforms that have a proven track record of security and reliability. Examples include Uniswap, Aave, and Lido Finance. These platforms have undergone audits and have implemented security measures to protect users' funds.
  3. Start Small: Begin with small investments to gain experience and understanding of how DeFi works. Avoid investing large sums of money until you are comfortable with the risks involved.
  4. Diversify Your Investments: Spread your investments across different DeFi platforms and assets to minimize risk. Diversification can help to mitigate the impact of potential losses from any single investment.

Understanding and Mitigating Risks

DeFi investments are often more speculative in nature and can involve intrinsic risks that should be thoroughly evaluated. Knowing these risks and proactively working to mitigate them by implementing solutions like the ones mentioned above are key to protecting your capital.

  • Smart Contract Risks: DeFi investments rely on smart contracts, which are susceptible to hacking or exploitation. Malicious actors can exploit vulnerabilities in the code to steal funds or manipulate the system.
  • Liquidity Pool Manipulation: Malicious actors can manipulate liquidity pools by shilling their token on social media and convincing people to buy it, leading to an imbalance in the pool. As users buy and sell tokens from the pool, the asset ratios can shift, increasing the value of one token while lowering the value of the other.
  • Flash Loan Attacks: Flash loan attacks involve borrowing a large sum of one token and swapping it for another to manipulate the price of both tokens. This can result in significant losses for liquidity providers.
  • Regulatory Risks: DeFi investments are often unregulated or underregulated, which can lead to uncertainty and risk for investors. Changes in regulations can impact the value and legality of DeFi assets.

By understanding the trends, navigating the regulatory landscape, taking practical steps, and mitigating risks, individuals can approach DeFi in 2025 with greater confidence and potentially benefit from this innovative financial ecosystem.

  • Understand the Risks: Be fully aware of the potential risks associated with DeFi investments before investing any money.
  • Use Two-Factor Authentication (2FA): Enable 2FA on your accounts to add an extra layer of security against unauthorized access.
  • Regularly Monitor Your Investments: Keep a close eye on your DeFi investments and be prepared to take action if you notice any suspicious activity.

By understanding the trends, navigating the regulatory landscape, taking practical steps, and mitigating risks, individuals can approach DeFi in 2025 with greater confidence and potentially benefit from this innovative financial ecosystem.