Introduction

2025 will be a watershed moment for the crypto industry, driven by favorable U.S. policy shifts, a surge in real-world blockchain use cases, and infrastructure ready for mainstream adoption. Under the Trump administration the climate of regulatory hostility, highlighted by the revelations of Operation Chokepoint 2.0, is expected to ease significantly. This shift emboldens crypto entrepreneurs to experiment more freely, particularly with stablecoins, which prolongs the U.S. Dollar’s dominance as a global medium for trade and settlement. As Jesse Pollak said, “We are going to light the whole world up with stablecoins.”

The Market moves towards Security

Degen Capital

From 2019 onward, DeFi attracted a wave of “degen” capital—high-risk investors willing to tolerate lax security in pursuit of outsized returns. This influx of speculative money propelled DeFi’s Total Value Locked (TVL) to astonishing heights, topping ~$200 billion in late 2021/early 2022 (according to DeFi Llama). However, the same period was riddled with significant exploits: Chainalysis estimates that hackers stole over $3 billion from DeFi protocols in 2022 alone, predominantly via cross-chain bridge hacks, where over half of all exploited funds originated. This also resulted in the rise of a DeFi Insurance industry, which because of the high risk of exploits, required excessive capital (costing as much as 2.5% of principal). Increased security drives premiums down and insures the customer base while improving overall capital efficiency.

Today, DeFi security has made great strides from its early days. But, even for the most risk-on degen capital, security remains a limiting factor. For example, security often affects the composability between DeFi protocols, enforcing capital inefficiencies across the ecosystem. The recent Polygon bridge proposal (Twitter) illustrates this perfectly. Despite the potential for $100M in revenue through reinvesting bridge collateral, security concerns surrounding DeFi protocols dominated the discussion. A hack of these protocols could render hundreds of millions in bridged assets worthless.

Traditional Capital

Despite these risks, DeFi’s potential has not gone unnoticed by institutional and more risk-averse investors. Large asset managers, hedge funds, and corporate treasuries have begun exploring the sector. While their capital has the potential to spur another phase of rapid growth, these traditional players also bring heightened scrutiny around compliance, custody solutions, and risk management. As a result, security will become the linchpin of sustainable DeFi expansion.

The new entrants' incentives are not that dissimilar from the “degen capital” mentioned above and that proliferated between 2019-2021. In contrast, their risk profiles and the current financial environment couldn’t be more different. Not only are institutional investors more risk averse (supposedly), but they also have access to competing yields within the traditional financial system. Given that current 10-year US Treasury Bonds offer a government-backed interest rate of over 4%, the DeFi ecosystem offers only a marginal increase in yield opportunities, which is largely outweighed by the increased risk and lack of security guarantees traditional investors are used to. Lowering that risk profile will prove pivotal for DeFi to attract more traditional players while offering better but sustainable yields.

Market

  • Stablecoins are surpassing ATHs with more than $110 billion across all blockchains. In the first half of 2024, stablecoins transacted more than $2.6T of value, with about 20M monthly active stablecoin users. (Dune)
  • 2024 saw a record of US$44.2 billion of inflows globally, almost 4x the prior record set in 2021. Ethereum accounted for $4.8 billion, 2.4x the total seen in 2021 and 60x the inflows of 2023 (CoinShares)

New Entrants

  • BlackRock entered the digital asset space with its BUIDL fund (BlackRock USD Institutional Digital Liquidity Fund), launching on Base.
  • Through Securitize Markets, accredited investors can access U.S. dollar yields, making BUIDL the dominant player in tokenized U.S. treasuries with $380m in holdings.
  • Deutsche Bank, Germany’s largest lender, is developing its own L2 network on top of ZkSync’s technology, part of Project Dama 2. Dama 2 is part of the Monetary Authority of Singapore’s Project Guardian, an initiative under which 24 major financial institutions are testing ways to use blockchain technology to tokenize assets. (Cointelegraph). Additionally, Sony is doing the same with Soneium.
  • Kraken and Base launched Superchain L2s focusing on security, as is apparent in their marketing and communications. They are accurately identifying that security is an important primitive for bringing the next billion (but more risk-averse) users onchain. (Twitter - Ink CEO) (Twitter - Base blog)
  • New L1s (Aptos, Sui) and side chains (Movement) are using Move’s language design, which naturally lends itself to less security-related footguns, as a major selling point for ecosystem adoption. (Twitter - Movement)

Tokenization

  • Larry Fink, CEO of BlackRock, has recently highlighted the significance of tokenization in the financial markets. He believes that "the next generation for markets, the next generation for securities, will be the tokenization of securities." Fink emphasized that tokenization could drive efficiencies in capital markets, shorten value chains, and improve cost and access for investors.
  • Base has recently mentioned that they are exploring tokenizing $COIN and putting it onchain. (Fortune).

Institutional investors demand robust contract audits, insured custody, and more comprehensive due diligence—processes that were often bypassed or ignored by “degen” capital. Protocols that can demonstrate strong security measures (e.g., multiple audit reports, public bug bounty programs, reliable oracles) stand to gain the trust and capital inflows from this new class of market participants. Consequently, the DeFi projects that thrive will be those that prioritize security as a core feature rather than an afterthought.

Onchain Banks

Blockchain native banking applications are bound to evolve, either from within the banking sector itself (like Deutsche Bank’s entry mentioned above) or from players in our industry.

Traditional banking security relies on ISO/IEC 27001 and PCI DSS frameworks, using periodic audits and transaction sampling to verify compliance.

The Credible Layer introduces a new paradigm where security rules (called "invariants") are coded in Solidity and enforced continuously through the nodes of the network, rather than checked periodically. Banks currently employ several checks to detect fraudulent transactions and enforce balance consistency (e.g., can’t overdraft an account, unless authorized).

Key advancement: Moving from periodic compliance verification to continuous cryptographic enforcement. The L2 sequencer must validate all transactions against published invariants, with violations automatically triggering stake-slashing.

While SWIFT validates messages before settlement in a closed network, this system provides similar security guarantees with the additional benefit of public verifiability through cryptographic proofs.

Integrating with the Credible Layer creates stronger security guarantees than traditional banking controls by:

  • Real-time compliance. Same as blockchain state, entirely visible being real-time auditing for Institutions.
  • Enforcing rules deterministically through code (vs human audits)
  • Providing transparent, cryptographic proof of compliance

However, blockchain security complements rather than replaces traditional operational controls. Physical security and human factors still require conventional security measures.

The result is a hybrid model combining cryptographic enforcement of rules with traditional operational security controls where needed.

Crypto needs Security to win

Winning the DeFi market for each chain not only means attracting liquidity away from existing networks, but also onboarding the next cohort of users, either institutions or retail. 

Security is a most pressing need from institutions and builders, while UX is top of mind for retail users, Security also will substantially affect the onboarding of retail users with strong second-order effects.

  1. Increased Institutional adoption translates to substantial inflows of capital, which enables the system to be more capital-efficient, offering a better experience to the users of DeFi products.
  2. The increased flows translate directly into a strong signal of trust from players that are considered “Financially Savvy”, which is directly translated into increased user onboarding and positive price action. These further cement a sentiment of stability that is important for retail users.
  3. Increased capital and security guarantees enable builders to experiment with novel constructs and use cases, without risking their careers on building new and not battle-tested primitives.
  4. The increased adoption of strong security guarantees and reduction in security incidents will also translate to less strict regulation, as the industry will showcase that it can self-regulate. Strict regulation is directly linked to stifling adoption, as with the requirement that angel investors need to be accredited. At a recent hearing of the Committee on Financial Services about DeFi, hacks were explicitly mentioned as something that regulators are worrying about. (Youtube).
  5. Finally, the combination of the above factors with using Security as a marketing key differentiator for networks will position any security-conscious network as the leader in DeFi adoption.

The Credible Layer enables the networks to leverage the above effects, without sacrificing any of the key values like decentralization and sovereignty, with the introduction of centralized and invasive SaaS solutions.

"At Base, we view security as a first-class citizen in our mission to bring $1T of capital, 1 billion people, and 1 million builders onchain. Security isn't just a checkbox—it's something we keep at the forefront while we work to safely and responsibly build the onchain economy. This commitment to security, combined with our operating tempo and high execution bar, is what sets Base apart. We ensure the robustness and safety of our systems through a comprehensive approach that includes first-party, third-party, and community touchpoints."
  • Tom Vieira, Head of Product for Base Builders

So far, we have argued on how security will positively affect inflows. Most importantly though, Security plays a central role in reducing the probability of a Black Swan event. In the “Black Swan” work, Nassim Taleb argues that aviation safety regulations are challenging to showcase value because they contribute to the “absence” of tragic acts of terrorism or accidents. It took years for our industry to internalize the value of security and reduce the frequency of incidents. Security will become a baseline that will safeguard each ecosystem from irrevocably damaging its reputation and losing hundreds of millions in TVL. Ecosystems like Blast (Certik) and Ronin (Halborn) hardly came back after their catastrophic security incidents. 

Conclusion

2025 is going to be the year in which security transitions from a “nice-to-have” to a “must-have.”

  1. Security has evolved from being a secondary consideration to becoming the fundamental driver of sustainable growth in DeFi, particularly as institutional investors and traditional capital enter the market seeking lower-risk opportunities that can compete with traditional finance yields.
  2. The growing number of networks focused on security indicates that scalability and safety will attract both institutional and retail capital away from other competing L1 and L2 solutions.
  3. The Credible Layer represents a paradigm shift from periodic security audits to continuous cryptographic enforcement, offering stronger security guarantees while maintaining blockchain principles of decentralization and sovereignty.
  4. Market indicators support this security-first approach, with stablecoin volumes reaching new ATHs ($110B+), record institutional inflows ($44.2B globally), and major players like BlackRock and Deutsche Bank entering the space with security-focused initiatives.
  5. The flywheel effect of enhanced security is clear: better security leads to increased institutional adoption, which drives capital efficiency, and attracts more users, which in turn brings more capital - creating a virtuous cycle of growth.
  6. Regulatory attitudes are shifting favorably, particularly in response to improved security measures, which could reduce barriers to entry and accelerate mainstream adoption.
  7. While difficult to quantify, the prevention of black swan events through robust security measures represents perhaps the most crucial benefit - protecting the ecosystem from catastrophic failures that have historically devastated other blockchain platforms.