Why Decentralized Finance (DeFi) Could Outshine the Market, According to Kaiko

DeFi Sector Poised for Growth as Regulatory Uncertainty Fades

Bitcoin (BTC) may have commanded the spotlight throughout 2024, but a shift in market dynamics under the Trump administration could drive investor interest toward decentralized finance (DeFi) projects, according to a new report from Kaiko Research.

Kaiko analysts Adam McCarthy and Dessislava Aubert suggest that DeFi is emerging as a strong contender in the crypto space. Their DeFi index (KSDEFI), launched in October 2023, has delivered approximately 75% returns—outpacing Ethereum (ETH) despite the fact that most of its components are Ethereum-based.

“This trend of outperformance could continue through the second half of 2025, as key DeFi assets benefit from favorable market conditions,” the report noted. “The growing independence of DeFi from Ethereum highlights the sector’s broader expansion.”

The index consists of 11 DeFi tokens, with the largest weightings given to Uniswap (UNI), Aave (AAVE), and Ondo Finance (ONDO). Several of these projects are positioned for significant upside in the months ahead, Kaiko said.

Regulatory developments in the U.S. could allow Uniswap and Aave to activate fee-switch mechanisms, potentially enabling revenue distribution to UNI and AAVE holders. Meanwhile, Ondo Finance is expected to capitalize on Wall Street’s increasing embrace of tokenization.

“Regulation has long been a bottleneck for DeFi’s growth, alongside challenges like high fees and security risks,” Kaiko’s report explained. “But as regulatory scrutiny eases, the sector is finally gaining momentum, opening up new opportunities for expansion.”