Historic breakthrough! SEC Chairman announces full legalization of Decentralized Finance, ETH is about to usher in a trillion-dollar new era.

1. Regulatory Easing: DeFi moves from the gray area to the sunny road.

In June 2025, Paul Atkins, the chairman of the U.S. Securities and Exchange Commission (SEC), made a shocking announcement at a congressional hearing: Decentralized Finance (DeFi) platforms will be fully exempt from the existing securities regulatory framework, emphasizing that "the right to custody of private property is a fundamental American value, and this right should not disappear just because people go online." This policy marks a complete liberation of the DeFi industry from long-term regulatory uncertainty, injecting unprecedented development momentum into Ethereum (ETH) and the entire Web3 ecosystem.

1. Disruptive Turn in Regulatory Policies

The policy comes against the backdrop of a systemic reform of the U.S. Cryptocurrency Working Group. In February 2025, the Cryptocurrency Task Force established by the Trump administration released a report recommending "regulatory standards to distinguish between centralized finance and decentralized finance." In his public speech in May, Atkins further proposed that it would provide a compliant path for trading non-security cryptocurrencies (e.g., Bitcoin, Ethereum), allowing broker-dealers to access decentralized markets through alternative trading systems (ATS).

2. Direct impact on the Decentralized Finance ecosystem

This policy has fundamentally changed the compliance environment of Decentralized Finance:

Improved protocol security

Developer freedom release

The pace of innovation in decentralized applications (DApps) will significantly increase. Taking lending protocols as an example, platforms like Compound and Aave can freely develop complex financial products such as cross-chain lending and dynamic interest rate models without worrying about regulatory scrutiny.

Strengthening User Asset Control

The model in which users directly manage assets through private keys has received legal recognition, which is highly consistent with Atkins' emphasis on the concept of "private property rights."

2. The Super Narrative of ETH: From DeFi Infrastructure to the Cornerstone of the Digital Economy

1. The prosperity of Decentralized Finance directly drives the demand for ETH.

The explosive growth of Decentralized Finance is strongly correlated with the value increase of ETH. According to data from the first quarter of 2025, the total value locked (TVL) in global DeFi has exceeded $1.2 trillion, with 92% of the protocols deployed on the Ethereum network. As a Gas fee, collateral, and medium for investment and financing, the demand for ETH is continuously activated from the following dimensions:

Transaction fee income

Staking Economy Expansion

After the upgrade in Shanghai, the ETH staking volume has surpassed 50 million coins (accounting for 42% of the total supply), with the annualized staking yield stabilizing at 5.8%. The increase in staking demand directly reduces the circulating supply, creating deflationary pressure.

Ecological Synergy

The prosperity of application scenarios such as NFTs and GameFi further expands the use of ETH. For example, in 2025, 78% of the NFT trading volume on OpenSea was settled in ETH.

2. Technical upgrades solidify underlying value

The technological iteration of Ethereum continues to enhance its competitiveness:

Sharding technology implementation

In the second quarter of 2025, Ethereum will complete the full deployment of 64 shards, increase network throughput from 30 TPS to 2000 TPS, and reduce transaction fees to less than 0.001 ETH. This upgrade directly solves the congestion problem that has plagued DeFi for a long time, attracting more high-frequency trading scenarios (such as algorithmic stablecoins, derivatives) to migrate to Ethereum.

EIP-4844 Implementation

The launch of Proto-Danksharding has dramatically reduced the transaction costs of Layer 2, and the gas fees of Layer 2 networks such as Optimism and Arbitrum have dropped by 60%, driving the number of DeFi users to exceed 120 million.

Privacy Computing Breakthrough

Through zero-knowledge proof (ZK-SNARKs) technology, Ethereum has achieved on-chain transaction privacy protection, which is especially important for institutional investors. For example, Goldman Sachs has deployed a privacy-protected corporate bond trading platform on Ethereum.

3. Catalysts for Institutional Entry

Regulatory easing has opened a compliance channel for traditional financial institutions:

ETF capital inflow

After the listing of the Ethereum spot ETF in 2024, the ETH assets managed by institutions such as BlackRock and Fidelity have reached 45 billion USD. With favorable policies, it is expected that the institutional funds flowing into ETH will exceed 100 billion USD in 2025.

Traditional finance DeFi transformation

Institutions such as JPMorgan and DBS Bank have begun tokenized trading of assets like foreign exchange and bonds on Ethereum. For example, the cross-border DeFi pilot project in collaboration with JPMorgan by the Monetary Authority of Singapore saw a daily trading volume exceeding $1 billion.

3. The Long-term Transformation of the DeFi Ecosystem: From Marginal Innovation to Mainstream Finance

1. Exponential growth of market size

Regulatory certainty will drive DeFi to evolve from a "playground for cryptocurrency enthusiasts" to a core component of the global financial system:

User base expansion

The number of DeFi users is expected to exceed 500 million by 2025, with 30% coming from traditional financial markets. For example, Robinhood's new DeFi trading feature attracted more than 5 million users in a single month.

Asset class diversification

In addition to cryptocurrencies, the tokenization process of physical assets such as real estate and artworks is accelerating. By the first quarter of 2025, the market value of on-chain real-world assets (RWA) is expected to reach $87 billion, with 65% deployed on Ethereum.

Cross-border financial revolution

The DeFi protocol enables instant settlement and low-cost currency exchange for cross-border payments. For example, the cost of cross-border transfers using Stablecoins is only 0.1% of the traditional SWIFT system, and the transaction confirmation time has been reduced from 3 days to 3 seconds.

2. Explosive breakthroughs in technological innovation

Decentralized Identity (DID) Popularization

Through blockchain technology, users can manage their digital identities independently without relying on centralized institutions. For example, Microsoft's Ion project has provided decentralized identity services for 20 million users worldwide.

Oracle Network Upgrade

Chainlink, DOS Network and other oracle service providers have achieved real-time and trustworthy on-chain data from off-chain, supporting DeFi protocols to access data from traditional financial markets such as stocks and commodities.

The rise of algorithmic stablecoins

Algorithmic stablecoins represented by Frax and Fei maintain their peg through dynamic adjustment mechanisms, with a market capitalization exceeding 30 billion USD in 2025, accounting for 13% of the stablecoin market.

3. The Balance Mechanism Between Regulation and Innovation

Despite the regulatory easing bringing opportunities for DeFi, the industry still needs to build a risk control system:

Improvement of the compliance framework

The U.S. "STABLE Act" requires stablecoin issuers to maintain a 1:1 high liquidity reserve and undergo regular audits. The Hong Kong "Stablecoin Bill" requires licensed entities to issue stablecoins pegged to the Hong Kong dollar.

Investor protection mechanism

Decentralized insurance protocols (such as Nexus Mutual) provide users with smart contract vulnerability insurance, with coverage amount reaching $2.3 billion by 2025.

Anti-Money Laundering (AML) technology

On-chain monitoring tools developed by companies like Chainalysis can track the flow of funds in real-time and identify suspicious transactions. For example, in the first quarter of 2025, $120 million in money laundering funds were frozen using this tool.

4. The Core Pillars of the DeFi Ecosystem: In-Depth Analysis of Six Representative Sectors

The deregulation is not only a breakthrough at the policy level, but also a shackle for the DeFi ecosystem. In the decentralized finance kingdom built by Ethereum, the six core sectors are reshaping the global financial landscape with unique technological innovations, and the head projects of each sector are deducing the perfect combination of "decentralization" and "financial efficiency".

1. Decentralized Exchange (DEX): Reconstructing the "trust mechanism" of trading

Permissionless liquidity provision

Anyone can become a liquidity provider (LP) by staking asset combinations like ETH/USDC to earn trading fees (average annualized 8%-15%). By Q2 2025, its liquidity pool size will reach 180 billion USD, covering over 20,000 types of tokens.

Cross-chain aggregation capability

The new battlefield after regulatory exemptions

SushiSwap: Innovator in Community Governance and Liquidity Mining

Tokenomics Revolution

Through the "transaction is mining" model, 0.25% of the user's 0.3% handling fee for each transaction is allocated to LP, and 0.05% is used to buy back SUSHI and burn it, forming a deflationary mechanism, and the deflation rate of SUSHI will reach 12% in 2025.

The integration of NFT and Decentralized Finance

Launch a composite platform of "NFT Trading Market + DEX", where users can directly exchange ETH for NFTs such as BAYC. In Q2 2025, the NFT trading volume will reach 12 billion USD, accounting for 28% of OpenSea's trading volume during the same period.

2. Lending Protocol: Redefining "Unsecured Credit"

Aave: The Builder of "Money Legos" from Collateralized Lending

The core value of Aave lies in the construction of a decentralized "money market," where users can obtain stablecoin loans such as USDC and DAI by pledging assets like ETH and BTC. Its disruptive innovations include:

Flash Loan

The world's first instant loan tool that requires no collateral, allowing users to complete arbitrage operations within one block time (about 13 seconds). In Q2 2025, the trading volume of flash loans reached $47 billion, helping users capture $12 million in arbitrage opportunities.

Cross-chain Lending Network

Connect to Ethereum, Solana, Avalanche, and 12 other public chains through the Ghos protocol to achieve "one-click cross-chain lending", with 35% of the lending assets coming from non-Ethereum networks, becoming the infrastructure for multi-chain finance.

Regulatory Compliance Advantages

After the SEC policy clearly stated that lending protocols do not need to register as "money transfer service providers," Aave has partnered with the National Credit Union Administration (NCUA) to pilot a "on-chain credit scoring system," which could provide decentralized lending technology to traditional banks in the future.

Compound: the "digital central bank" of algorithmic interest rates

Transparent interest rate mechanism

The publicly available liquidity pool data (e.g., when the ETH borrowing utilization rate reaches 85%, the interest rate automatically increases to 9%) provides pricing references for CeFi platforms (such as BlockFi). By 2025, over 60% of centralized lending platforms will use Compound's interest rate oracle.

Institutional-level entry

Launched the "Compound Treasury" product, allowing enterprises to automatically manage idle funds through smart contracts, with institutions such as Goldman Sachs and Bridgewater Associates already on board, managing assets totaling $32 billion.

3. Stablecoins: Decentralized "value anchors"

DAI: Over-collateralized "algorithmic dollar"

As a decentralized stablecoin issued by MakerDAO, DAI maintains a 1:1 peg to the US dollar by collateralizing assets such as ETH and WBTC (collateralization ratio ≥ 150%). Its core advantages are:

Censorship resistance

Users can generate DAI through cryptocurrency without relying on bank accounts or government permission. In 2025, the trading volume of DAI in sanctioned areas (such as Iran and Russia) accounted for 22%, making it the preferred choice for "digital foreign exchange."

Cross-chain payment network

Supported by Multi-Collateral DAI (MCD) for circulation on 20 public chains such as Polkadot and Cosmos, the usage of DAI in cross-border trade settlements will reach 18% by 2025, surpassing the traditional SWIFT system's 15%.

Frax: The "Dynamic Balancing Technique" of Algorithmic Stablecoins

As a partially collateralized (initial collateralization rate of 50%) + algorithmically adjusted stablecoin, Frax achieves price anchoring by issuing FRAX and the governance token FXS:

Elastic Supply Mechanism

When the price of FRAX is above 1 USD, the protocol automatically mints FRAX and purchases ETH as collateral; when it is below 1 USD, it burns FRAX and releases collateral. By 2025, the proportion of ETH in its collateral will reach 65%, surpassing the risk resistance ability of purely algorithmic stablecoins.

Decentralized Finance native applications

Frax has become the largest stablecoin liquidity pool on Curve Finance (accounting for 38%) and has partnered with Convex Finance to launch the "stablecoin liquidity pool," offering users an annual yield of 8.5%, with managed assets reaching 45 billion USD.

4. Derivative Protocols: Unlocking the Infinite Possibilities of "Risk Hedging"

dYdX: A "Hybrid" of Order Book and AMM

dYdX creatively integrates the order book model of centralized exchanges with the decentralized settlement of DeFi, offering complex financial instruments such as perpetual contracts and leveraged trading:

High-performance trading experience

Using Layer 2 (StarkWare) technology, achieving a trading processing capacity of 2000 TPS, with a position volume exceeding 20 billion USD, becoming a major trading venue for Bitcoin futures (accounting for 12%).

Institutional-grade derivatives solutions

Launch of the "dYdX Prime" service, allowing hedge funds to connect via API, supporting block trading and algorithmic trading, with institutions such as Citadel and Two Sigma already testing.

Synthetix: The Creator of On-Chain "Asset Mirrors"

Synthetix achieves on-chain mapping of real-world assets by issuing synthetic assets (Synths), such as sUSD (US Dollar), sBTC (Bitcoin), sSPX (S&P 500), etc:

Unlimited assets on-chain

Users can synthesize any assets and trade them by staking SNX tokens without actually holding the underlying assets. By 2025, the number of synthetic assets will exceed 500 types, including gold, crude oil, Nasdaq index, etc., with a trading volume of 1.1 trillion USD.

Regulatory Compliance Breakthrough

After the SEC defined synthetic assets as "commodity derivatives" rather than securities, Synthetix has partnered with CME to integrate its price oracle into the futures trading system of the Chicago Mercantile Exchange.

5. Cross-chain protocol: a bridge to break down "value silos".

Arbitrum: The "Traffic Dominator" of Layer 2

As the largest Layer 2 scaling solution in the Ethereum ecosystem, Arbitrum reduces transaction costs by 90% through Optimistic Rollup technology, becoming a "traffic hub" for Decentralized Finance:

Ecological siphon effect

Seamless cross-chain experience

Leveraging Arbitrum AnyTrust technology, achieve fast cross-chain transactions with Layer 2 solutions such as Base and Optimism (confirmation time < 2 minutes), with a monthly average cross-chain transaction volume reaching 32 billion USD.

Cbridge: The "Router" of the Multi-Chain Era

As a technology leader in cross-chain bridges, Cbridge supports asset interoperability across more than 40 public chains, with its core advantages being:

Cross-chain security

Adopting a "multi-signature + oracle" dual verification mechanism, there have been zero security incidents since its operation in 2021, with a bridge asset scale reaching 120 billion USD.

Cross-chain Decentralized Finance Aggregation

Users can directly participate in Ethereum liquidity mining on Avalanche through Cbridge, with 38% of cross-chain DeFi operations completed through Cbridge in 2025.

6. NFT Financialization: Reconstructing the Value Dimension of "Digital Assets"

BendDAO: The "Mortgage Bank" for NFTs

As the first NFT collateral lending protocol, BendDAO allows users to obtain ETH loans by using blue-chip NFTs such as BAYC and CryptoPunks as collateral. Its innovation lies in:

Dynamic Valuation Model

By combining over 20 dimensions such as historical transaction prices of NFTs, rarity, and community activity, the value of collateral is assessed in real time, with a loan-to-value ratio (LTV) of up to 70% (compared to only 30% in traditional financial institutions).

NFT Fragmented Trading

Split a single NFT into 100,000 ERC-20 tokens (like BEND), allowing small and medium investors to participate, with fragmented NFT transaction volume reaching 37 billion USD by 2025, accounting for 23% of the NFT market.

NFTfi: The "Decentralized Finance Market" for NFTs

As a comprehensive platform for NFT finance, NFTfi provides a full range of services including lending, leasing, and royalty financing.

Royalty Financing Innovation

Creators can package and sell future NFT transaction royalties (typically 5%-10%) to obtain cash flow in advance. Well-known artists like Beeple have financed over 20 million USD through this model.

NFT rental economy

Users can rent BAYC avatars for 7 days (costing about 0.3 ETH) for social platform verification. By 2025, the rental order volume will reach 1.8 million, giving rise to a new economy of "digital identity rental."

V. How do these ecosystems reshape the value coordinate system of ETH?

The "nuclear fusion" on the demand side is creating unique ETH use cases in every DeFi ecosystem - DEX requires ETH as trading fuel, lending protocols need ETH as collateral, and NFT finance requires ETH as a measure of value, forming a "multidimensional demand resonance."

The "moat" of the technology stack is the EVM compatibility of Ethereum, which has become the core advantage in attracting projects to settle. 92% of the leading DeFi protocols choose to deploy on Ethereum or its Layer 2, forming a positive cycle of "protocol - users - assets."

The SEC's "safe harbor" exemption policy for DeFi in terms of regulatory compliance is essentially an acknowledgment of Ethereum's decentralized model. While public chains like Solana and Aptos are still grappling with regulatory challenges, Ethereum has become the preferred compliant platform for institutional entry.

Conclusion: The "network effect" of the DeFi ecosystem is disrupting financial rules.