Herc DeFi Research

Crypto Regulatory Landscape in 2025

Feb 12, 2025By Herc
Herc

What to Expect in 2025: Cryptocurrency, DeFi, and the Regulatory Landscape

As we step into 2025, the world of cryptocurrency and decentralized finance (DeFi) continues to evolve at a rapid pace. This year promises to bring significant advancements, new opportunities, and a more mature regulatory environment. Whether you're a seasoned crypto enthusiast or just starting your journey, here's what you can expect in the coming year.

The Regulatory Landscape of Cryptocurrency in 2025

The regulatory environment for cryptocurrency has undergone significant changes over the past few years, marked by contrasting approaches from the Biden and Trump administrations. This section delves into the negative impacts of the Biden administration's policies, particularly Operation Chokepoint 2.0, and the positive actions taken by the Trump administration to pave the way for cryptocurrency as a mainstream asset.


The Biden Administration and Operation Chokepoint 2.0
Operation Chokepoint 2.0 was a controversial initiative under the Biden administration aimed at curbing the growth of the cryptocurrency industry. This operation was reminiscent of the original Operation Chokepoint initiated during the Obama administration, which targeted industries deemed high-risk or undesirable, such as payday lenders and gun manufacturers.

Negative Impacts of Operation Chokepoint 2.0:

  1. Debanking of Crypto Firms: The Biden administration's regulators, including the FDIC, pressured banks to sever ties with cryptocurrency firms. This was achieved through informal guidance and threats of increased scrutiny, leading to many banks refusing to provide services to crypto companies1. This debanking effort severely restricted the operational capabilities of these firms, making it difficult for them to access essential financial services.
  2. Stifling Innovation: By targeting the digital asset ecosystem, Operation Chokepoint 2.0 hindered innovation within the cryptocurrency space. The fear of regulatory backlash led many financial institutions to distance themselves from crypto projects, stifling the development of new technologies and financial products.
  3. Consumer Harm: The restrictive measures not only affected crypto firms but also harmed consumers by limiting their access to innovative financial products and services. This regulatory overreach undermined consumer choice and restricted the benefits that digital assets could offer
  4. Economic Impact: The debanking of crypto firms had broader economic implications. It discouraged investment in the U.S. crypto industry, leading to a potential loss of jobs and economic opportunities. The uncertainty created by these policies drove some crypto businesses to relocate to more crypto-friendly jurisdictions. 

The Trump Administration's Pro-Crypto Actions

In stark contrast to the Biden administration, the Trump administration has taken several steps to support and promote the cryptocurrency industry. These actions are aimed at fostering innovation, providing regulatory clarity, and positioning the United States as a leader in digital financial technology.


Positive Impacts of Trump Administration Policies:

  1. Executive Order on Digital Financial Technology: In January 2025, President Trump signed an executive order titled "Strengthening American Leadership in Digital Financial Technology." This order aims to remove regulatory barriers, boost stablecoin development, and create a national digital asset stockpile. The executive order establishes the Presidential Working Group on Digital Asset Markets to develop a federal regulatory framework governing digital assets.
  2. Pro-Crypto Regulatory Framework: The executive order directs federal agencies to identify and recommend the removal or modification of regulations that hinder the growth of the digital asset sector. This includes halting aggressive enforcement actions that stifled innovation under previous administrations. The goal is to create a clear and supportive regulatory environment that encourages the development and adoption of digital assets.
  3. Crypto-Friendly Appointments: President Trump has appointed several crypto-friendly officials to key regulatory positions, including former SEC Commissioner Paul Atkins, a former Reserve Rights advisor I might add. These appointments are intended to ensure that the regulatory framework is informed by individuals who understand the unique challenges and opportunities of the crypto industry.
  4. Support for Blockchain Innovation: The Trump administration has introduced initiatives like the U.S. DOGE Service and a Presidential Council on Cryptocurrencies to position the U.S. as a leader in blockchain and cryptocurrency innovation5. These initiatives aim to promote the development and deployment of blockchain technologies across various sectors of the economy.
  5. National Digital Asset Stockpile: One of the key components of the executive order is the creation of a national digital asset stockpile. This stockpile is intended to secure the U.S.'s position in the digital asset economy and provide a strategic reserve of digital assets5. The stockpile could potentially be derived from cryptocurrencies lawfully seized by the federal government through its law enforcement efforts.
  6. Economic Liberty and Innovation: The Trump administration's policies emphasize the importance of economic liberty and the need to protect innovation from unnecessary government interference. By providing regulatory clarity and reducing the burden of compliance, these policies aim to create an environment where digital financial technology can thrive.

Comparative Analysis: Biden vs. Trump Administration

The contrasting approaches of the Biden and Trump administrations highlight the significant impact that regulatory policies can have on the cryptocurrency industry.

Biden Administration:

  • Operation Chokepoint 2.0: Targeted and debanked crypto firms, stifling innovation and harming consumers.
  • Regulatory Overreach: Created uncertainty and discouraged investment in the U.S. crypto industry.
  • Negative Economic Impact: Potential loss of jobs and economic opportunities as firms relocated to more crypto-friendly jurisdictions.

Trump Administration:

  • Executive Order on Digital Financial Technology: Removed regulatory barriers and provided a clear framework for digital assets.
  • Supportive Regulatory Environment: Encouraged innovation and development within the crypto industry.
  • Economic Liberty: Emphasized the importance of protecting innovation from unnecessary government interference.
  • National Digital Asset Stockpile: Secured the U.S.'s position in the digital asset economy.

Cryptocurrency Expectations for 2025

Bitcoin and Ethereum: Bitcoin is projected to reach new heights, with some forecasts suggesting it could trade between $75,500 and $150,000. Ethereum, on the other hand, is expected to trade between $2,670 and $5,990, with potential to exceed $6,660 if bullish momentum continues. These projections are driven by ongoing institutional adoption and broader acceptance.
Altcoins: The altcoin market is also set for a significant boost. Historically, alt seasons follow Bitcoin's halving events, and 2025 is expected to be no different. Altcoins like Solana, Cardano, and Polkadot are likely to see increased interest and investment.

DeFi Protocols and Their 2025 Outlook


AAVE and Morpho: AAVE remains a leading DeFi protocol, known for its robust lending and borrowing services. In 2025, AAVE is expected to continue its dominance, with Morpho emerging as a strong competitor due to its innovative approach to lending and borrowing.
Tokemak and Ionic Protocol: Tokemak is set to revolutionize liquidity provisioning with its decentralized market-making services. Ionic Protocol, with its focus on cross-chain lending and borrowing, is expected to gain traction as multichain platforms become more prevalent.
Yearn Finance: Yearn continues to be a go-to for yield optimization. In 2025, Yearn is expected to expand its suite of products, offering more sophisticated strategies for maximizing returns.
DEXs and Reserve Rights: Decentralized exchanges (DEXs) like Uniswap and SushiSwap will continue to play a crucial role in the DeFi ecosystem. Reserve Rights, with its focus on stablecoin issuance and decentralized governance, is poised for growth as stablecoins gain wider acceptance.


Yield Generating Strategies for 2025


Yield farming remains a cornerstone of DeFi, offering various strategies to generate passive income. Here are some strategies to consider:


Stablecoin Yield Farming: Platforms like Kamino Finance, Synthetix, offer delta-neutral strategies that provide competitive yields with lower risk.

Initial Investment: $10,000 USDC
Annual Percentage Yield (APY): 10%
Time Period: 1 year

The future value (FV) of the investment that is compounded daily can be calculated using the formula for compound interest:

FV=10,000(1+0.10/365)x365
FV=10,000(1+0.0002739726)x365
FV=10,000(1.0002739726)x365 = 1.1051557

FV= 10,000x1.1051557 = 11,051.56


After one year, the investment would grow to approximately $11,051.56

Leveraged Staking: Strategies involving leveraged staking of assets like Algorand (ALGO) can amplify returns, though they come with higher risks.

Initial Stake: 1000 ALGO
Borrowed Amount: 500 ALGO
Total Stake: 1500 ALGO
Interest Rate on Borrowed Amount: 5%
Staking APY: 15%

The net yield after one year can be calculated as:

Y= (1500×0.15)−(500×0.05)=225-25=200ALGO

compare this to not utilizing a leveraged  borrowing strategy:

Y= 1000x0.15=150ALGO

The net yield would be 200 ALGO by utilizing a yield strategy after one year vs 150 ALGO by just staking alone, 33% more ALGO even after paying the interest rate to borrow. 


Liquidity Provisioning: Providing liquidity on platforms like Uniswap and SushiSwap can yield significant returns, especially during periods of high trading volume.

Initial Investment in USDC: $3,000
Initial Investment in ETH: $3,000
Trading Fee Rate: 0.3%
Annual Trading Volume: $100,000,000
Total Value Locked (TVL): $5,000,000

The annual return RR from trading fees can be approximated as:

- Trading Fee Rate: 0.3% or 0.003
- Annual Trading Volume: $100,000,000
- Fees Earned Annually:
  100,000,000x0.003 = $300,000

Determine Proportional Share of Fees Based on TVL

- Total Value Locked (TVL): $5,000,000
- Your share of TVL:
  6000/5000000 = 0.0012
- Your share of the fees:
  300,000x0.0012 = $360

- Fees Earned in a year: $360 without the consideration of impermenant loss or price appreciation. 

Many pools have trading fees in the 1% range which makes it more profitable. 


Yield Aggregators: Using yield aggregators like Yearn Finance can help optimize returns by automatically reallocating assets to the highest-yielding opportunities.

Initial Investment: $5,000
Average APY: 12%
Time Period: 1 year

The Future Value compounded daily can be calculated as:    

FV=5,000(1+0.12/365)^365
FV=5,000(1+0.0003287671)^365
FV=5,000(1.0003287671)^365 = 1.127467

FV = $5000x1.127467 = 5,637.33

After one year, the investment would grow to $5,637.33

Lending and Borrowing On-Chain in 2025

On-chain lending and borrowing are expected to become even more seamless and efficient in 2025. Multichain lending platforms like Venus Protocol and Unitus Finance will offer users the flexibility to lend and borrow across multiple blockchain networks. This will increase liquidity and provide more options for users to manage their assets.
Here are eight protocols to watch in 2025, along with their pros and cons, and key statistics:

AAVE

  • Pros:
    • Wide Range of Assets: Supports a diverse array of cryptocurrencies.
    • Flash Loans: Allows for uncollateralized loans, useful for arbitrage.Source
    • Multi-Chain Support: Operates on multiple blockchains, reducing fees.
  • Cons:
    • Complexity: Can be overwhelming for new users.Source
  • 2025 Stats:
    • Daily Active Users: 150,000
    • Total Value Locked (TVL): $20 billion
    • Average Borrow Utilization: 75%

Morpho

  • Pros:
    • Innovative Matching Engine: Optimizes lending and borrowing rates.
    • User-Friendly Interface: Simplifies the user experience.
  • Cons:
    • Limited Asset Support: Fewer supported assets compared to competitors.
    • Newer Protocol: Less tested and potentially less secure.
  • 2025 Stats:
    • Daily Active Users: 50,000
    • Total Value Locked (TVL): $3.9 billion
    • Average Borrow Utilization: 65%

Ionic Protocol

  • Pros:
    • Cross-Chain Lending: Supports lending and borrowing across multiple chains.
  • Cons:
    • Recent Security Breach: Suffered a significant hack in early 2025.
    • Complex Governance: Governance model can be difficult to navigate.
  • 2025 Stats:
    • Total Value Locked (TVL): $55 million
    • Average Borrow Utilization: 70%

Compound

  • Pros:
    • Algorithmic Interest Rates: Automatically adjusts rates based on supply and demand.
    • High Liquidity: Large user base and significant total value locked (TVL).
  • Cons:
    • Over-Collateralization: Requires users to over-collateralize their loans.
  • 2025 Stats:
    • Daily Active Users: 100,000
    • Total Value Locked (TVL): $2.7 billion
    • Average Borrow Utilization: 80%

Alchemix

  • Pros:
    • Self-Repaying Loans: Loans are repaid using future yield.
    • Flexible Borrowing: Allows for more flexible borrowing terms.
  • Cons:
    • Complex Mechanism: Can be difficult for new users to understand.
    • Limited Asset Support: Supports fewer assets compared to other protocols.
  • 2025 Stats:
    • Daily Active Users: 20,000
    • Total Value Locked (TVL): $50 Million
    • Average Borrow Utilization: 60%

MakerDAO (Now SKY)

  • Pros:
    • Stablecoin Issuance: Issues the DAI stablecoin, widely used in DeFi.
    • Decentralized Governance: Community-driven decision-making.
  • Cons:
    • Over-Collateralization: Requires significant collateral.
    • Governance Risks: Potential for governance attacks.
  • 2025 Stats:
    • Daily Active Users: 80,000
    • Total Value Locked (TVL): $5.3 billion
    • Average Borrow Utilization: 70%

Synthetix

  • Pros:
    • Synthetic Assets: Allows for the creation of synthetic assets that track real-world assets.
    • High Liquidity: Significant trading volume and liquidity.
  • Cons:
    • Complexity: Can be difficult for new users to understand.
  • 2025 Stats:
    • Daily Active Users: 40,000
    • Total Value Locked (TVL): $202 Million
    • Average Borrow Utilization: 75%

Curve Finance

  • Pros:
    • Low Slippage: Optimized for stablecoin trading with minimal slippage.
    • Low Fees: Competitive fee structure.
  • Cons:
    • Limited to Stablecoins: Primarily supports stablecoin trading.
  • 2025 Stats:
    • Daily Active Users: 60,000
    • Total Value Locked (TVL): $2.1 billion
    • Average Borrow Utilization: 65%

Note: All decentralized applications (dApps) and protocols carry inherent risks, including potential bugs and exploits. Users should conduct thorough research and exercise caution when interacting with these platforms.

Forward-Looking Statement

As we look ahead to the future of cryptocurrency and decentralized finance, the regulatory landscape will play a crucial role in shaping the industry's trajectory. The Trump administration's pro-crypto policies are expected to foster a more supportive environment for innovation, driving the growth of digital assets and blockchain technologies. This regulatory clarity will likely attract institutional investors, further legitimizing the asset class and unlocking new pools of capital.

The performance of crypto tokens and platforms in 2025 has been promising, with significant growth in daily active users, total value locked (TVL), and average borrow utilization across leading protocols like AAVE, Morpho, and Compound. These platforms have demonstrated resilience and adaptability, positioning themselves as key players in the evolving DeFi ecosystem.

However, the journey is not without challenges. The global regulatory landscape remains complex, with varying degrees of oversight and compliance requirements across different jurisdictions. While the European Union's MiCA regulation and Dubai's VARA guidelines provide a framework for stablecoin issuers and digital asset service providers, they also introduce stringent compliance measures that could impact smaller players in the market.

In this dynamic environment, adaptability and innovation will be key to success. As the industry continues to mature, we can expect to see further integration of blockchain technologies into mainstream financial systems, offering new opportunities for both retail and institutional investors. The ongoing efforts to create a national digital asset stockpile and the establishment of a Presidential Council on Cryptocurrencies underscore the U.S.'s commitment to maintaining its leadership in the digital financial technology space.

Overall, the future of cryptocurrency and DeFi in 2025 looks bright, with a balanced regulatory approach that encourages innovation while ensuring consumer protection and financial stability. By staying informed and engaged, stakeholders can navigate this evolving landscape and capitalize on the opportunities it presents.


-Herc