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DeFi’s Next Chapter: Perspectives from Leading Builders and Investors (2024 – 2025)

· 11 min read
Dora Noda
Software Engineer

Decentralized Finance (DeFi) matured considerably from the summer‑2020 speculation boom to the 2024‑2025 cycle. Higher interest rates slowed DeFi’s growth in 2022‑2023, but the emergence of high‑throughput chains, token‑driven incentives and a clearer regulatory environment are creating conditions for a new phase of on‑chain finance. Leaders from Hyperliquid, Aave, Ethena and Dragonfly share a common expectation that the next chapter will be driven by genuine utility: efficient market infrastructure, yield‑bearing stablecoins, real‑world asset tokenization and AI‑assisted user experiences. The following sections analyze DeFi’s future through the voices of Jeff Yan (Hyperliquid Labs), Stani Kulechov (Aave Labs), Guy Young (Ethena Labs) and Haseeb Qureshi (Dragonfly).

Jeff Yan – Hyperliquid Labs

Background

Jeff Yan is co‑founder and CEO of Hyperliquid, a decentralized exchange (DEX) that operates a high‑throughput orderbook for perpetuals and spot trading. Hyperliquid gained prominence in 2024 for its community‑driven airdrop and refusal to sell equity to venture capitalists; Yan kept the team small and self‑funded to maintain product focus. Hyperliquid’s vision is to become a decentralized base layer for other financial products, such as tokenized assets and stablecoins.

Vision for DeFi’s Next Chapter

  • Efficiency over hype. At a Token 2049 panel, Yan compared DeFi to a math problem; he argued that markets should be efficient, where users obtain the best prices without hidden spreads. Hyperliquid’s high‑throughput orderbook aims to deliver this efficiency.
  • Community ownership and anti‑VC stance. Yan believes DeFi success should be measured by value delivered to users rather than investor exits. Hyperliquid rejected private market‑maker partnerships and centralized exchange listings to avoid compromising decentralization. This approach resonates with DeFi’s ethos: protocols should be owned by their communities and built for long‑term utility.
  • Focus on infrastructure, not token price. Yan stresses that Hyperliquid’s purpose is to build robust technology; product improvements, such as HIP‑3, aim to mitigate dApp risks through automated audits and better integrations. He avoids setting rigid roadmaps, preferring to adapt to user feedback and technological changes. This adaptability reflects a broader shift from speculation toward mature infrastructure.
  • Vision for a permissionless financial stack. Yan sees Hyperliquid evolving into a foundational layer on which others can build stablecoins, RWAs and new financial instruments. By remaining decentralized and capital‑efficient, he hopes to establish a neutral layer akin to a decentralized Nasdaq.

Takeaways

Jeff Yan’s perspective emphasizes market efficiency, community‑driven ownership and modular infrastructure. He sees DeFi’s next chapter as a consolidation phase in which high‑performance DEXs become the backbone for tokenized assets and yield products. His refusal to take venture funding signals a pushback against excessive speculation; in the next chapter, protocols may prioritize sustainability over headline‑grabbing valuations.

Stani Kulechov – Aave Labs

Background

Stani Kulechov founded Aave, one of the first money‑market protocols and a leader in decentralized lending. Aave’s liquidity markets allow users to earn yield or borrow assets without intermediaries. By 2025, Aave’s TVL and product suite expanded to include stablecoins and a newly launched Family Wallet—a fiat–crypto on‑ramp that debuted at the Blockchain Ireland Summit.

Vision for DeFi’s Next Chapter

  • Rate‑cut catalyst for “DeFi summer 2.0.” At Token 2049, Kulechov argued that falling interest rates would ignite a new DeFi boom similar to 2020. Lower rates create arbitrage opportunities as on‑chain yields remain attractive relative to TradFi, drawing capital into DeFi protocols. He recalls that DeFi's TVL jumped from less than 1billionto1 billion to 10 billion during the 2020 rate cuts and expects a similar dynamic when monetary policy loosens.
  • Integration with fintech. Kulechov envisions DeFi embedding into mainstream fintech infrastructure. He plans to distribute on‑chain yields through consumer‑friendly apps and institutional channels, turning DeFi into a back‑end for savings products. The Family Wallet exemplifies this by offering seamless fiat–stablecoin conversions and everyday payments.
  • Real‑world assets (RWAs) and stablecoins. He regards tokenized real‑world assets and stablecoins as pillars of blockchain’s future. Aave’s GHO stablecoin and RWA initiatives aim to connect DeFi yields to real‑economy collateral, bridging the gap between crypto and traditional finance.
  • Community‑driven innovation. Kulechov credits Aave’s success to its community and expects user‑governed innovation to drive the next phase. He suggests that DeFi will focus on consumer applications that abstract complexity while preserving decentralization.

Takeaways

Stani Kulechov foresees a return of the DeFi bull cycle fueled by lower rates and improved user experience. He stresses integration with fintech and real‑world assets, predicting that stablecoins and tokenized treasuries will embed DeFi yields into everyday financial products. This reflects a maturation from speculative yield farming to infrastructure that coexists with traditional finance.

Guy Young – Ethena Labs

Background

Guy Young is the CEO of Ethena Labs, creator of sUSDe, a synthetic dollar stablecoin that uses delta‑neutral strategies to offer a yield‑bearing dollar. Ethena gained attention for providing attractive yields while using USDT collateral and short perpetual positions to hedge price risk. In 2025, Ethena announced initiatives like iUSDe, a compliant wrapped version for traditional institutions.

Vision for DeFi’s Next Chapter

  • Stablecoins for savings and trading collateral. Young categorizes stablecoin use cases into trading collateral, savings for developing countries, payments and speculation. Ethena focuses on savings and trading because yield makes the dollar attractive and exchange integration drives adoption. He believes a yield‑bearing dollar will become the world’s most important savings asset.
  • Neutral, platform‑agnostic stablecoins. Young argues that stablecoins must be neutral and widely accepted across venues; attempts by exchanges to push proprietary stablecoins harm user experience. Ethena’s use of USDT increases demand for Tether rather than competing with it, illustrating synergy between DeFi stablecoins and incumbents.
  • Integration with TradFi and messaging apps. Ethena plans to issue iUSDe with transfer restrictions to satisfy regulatory requirements and to integrate sUSDe into Telegram and Apple Pay, enabling users to save and spend yield‑bearing dollars like sending messages. Young imagines delivering a neobank‑like experience to a billion users through mobile apps.
  • Shift toward fundamentals and RWAs. He notes that crypto speculation appears saturated—altcoin market caps peaked at $1.2 trillion in both 2021 and 2024—so investors will focus on projects with real revenue and tokenized real‑world assets. Ethena’s strategy of providing yield from off‑chain assets positions it for this transition.

Takeaways

Guy Young’s perspective centers on yield‑bearing stablecoins as DeFi’s killer app. He argues that DeFi’s next chapter involves making dollars productive and embedding them into mainstream payments and messaging, drawing billions of users. Ethena’s platform‑agnostic approach reflects a belief that DeFi stablecoins should complement rather than compete with existing systems. He also anticipates a rotation from speculative altcoins to revenue‑generating tokens and RWAs.

Haseeb Qureshi – Dragonfly

Background

Haseeb Qureshi is managing partner at Dragonfly, a venture capital firm focusing on crypto and DeFi. Qureshi is known for his analytical writing and participation on the Chopping Block podcast. In late 2024 and early 2025, he released a series of predictions outlining how AI, stablecoins and regulatory changes will shape crypto.

Vision for DeFi’s Next Chapter

  • AI‑powered wallets and agents. Qureshi predicts that AI agents will revolutionize crypto by automating bridging, optimizing trade routes, minimizing fees and steering users away from scams. He expects AI‑driven wallets to handle cross‑chain operations seamlessly, reducing the complexity that currently deters mainstream users. AI‑assisted development tools will also make it easier to build smart contracts, solidifying the EVM’s dominance.
  • AI agent tokens vs. meme coins. Qureshi believes that tokens associated with AI agents will outperform meme coins in 2025 but warns that the novelty will fade and real value will come from AI’s impact on software engineering and trading. He views the current excitement as a shift from “financial nihilism to financial over‑optimism,” cautioning against overhyping chat‑bot coins.
  • Convergence of stablecoins and AI. In his 2025 predictions, Qureshi outlines six major themes: (1) the distinction between layer‑1 and layer‑2 chains will blur as AI tools expand EVM share; (2) token distributions will shift from large airdrops to metric‑driven or crowdfunding models; (3) stablecoin adoption will surge, with banks issuing their own stablecoins while Tether retains dominance; (4) AI agents will dominate crypto interactions but their novelty may fade by 2026; (5) AI tools will drastically lower development costs, enabling a wave of dApp innovation and stronger security; and (6) regulatory clarity, particularly in the U.S., will accelerate mainstream adoption.
  • Institutional adoption and regulatory shifts. Qureshi expects Fortune 100 companies to offer crypto to consumers under a Trump administration and believes U.S. stablecoin legislation will pass, unlocking institutional participation. The Gate.io research summary echoes this, noting that AI agents will adopt stablecoins for peer‑to‑peer transactions and that decentralized AI training will accelerate.
  • DeFi as infrastructure for AI‑assisted finance. On The Chopping Block, Qureshi named Hyperliquid as the “biggest winner” of 2024’s cycle and predicted DeFi tokens would see explosive growth in 2025. He attributes this to innovations like liquidity‑guidance pools that make decentralized perpetual trading competitive. His bullishness on DeFi stems from the belief that AI‑powered UX and regulatory clarity will drive capital into on‑chain protocols.

Takeaways

Haseeb Qureshi views DeFi’s next chapter as convergence of AI and on‑chain finance. He anticipates a surge in AI‑powered wallets and autonomous agents, which will simplify user interactions and attract new participants. Yet he cautions that the AI hype may fade; sustainable value will come from AI tools lowering development costs and improving security. He expects stablecoin legislation, institutional adoption and metric‑driven token distributions to professionalize the industry. Overall, he sees DeFi evolving into the foundation for AI‑assisted, regulatory‑compliant financial services.

Comparative Analysis

DimensionJeff Yan (Hyperliquid)Stani Kulechov (Aave)Guy Young (Ethena)Haseeb Qureshi (Dragonfly)
Core FocusHigh‑performance DEX infrastructure; community ownership; efficiencyDecentralized lending; fintech integration; real‑world assetsYield‑bearing stablecoins; trading collateral; payments integrationInvestment perspective; AI agents; institutional adoption
Key Drivers for Next ChapterEfficient order‑book markets; modular protocol layer for RWAs & stablecoinsRate cuts spurring capital inflow and “DeFi summer 2.0”; integration with fintech & RWAsNeutral stablecoins generating yield; integration with messaging apps and TradFiAI‑powered wallets and agents; regulatory clarity; metric‑driven token distributions
Role of StablecoinsUnderpins future DeFi layers; encourages decentralized issuersGHO stablecoin & tokenized treasuries integrate DeFi yields into mainstream financial productssUSDe turns dollars into yield‑bearing savings; iUSDe targets institutionsBanks to issue stablecoins by late 2025; AI agents to use stablecoins for transactions
View on Token IncentivesRejects venture funding & private market‑maker deals to prioritize communityEmphasizes community‑driven innovation; sees DeFi tokens as infrastructure for fintechAdvocates platform‑agnostic stablecoins that complement existing ecosystemsPredicts shift from large airdrops to KPI‑driven or crowdfunding distributions
Outlook on Regulation & InstitutionsMinimal focus on regulation; stresses decentralization & self‑fundingSees regulatory clarity enabling RWA tokenization and institutional useWorking on transfer‑restricted iUSDe to meet regulatory requirementsAnticipates U.S. stablecoin legislation & pro‑crypto administration accelerating adoption
On AI & AutomationN/AN/ANot central (though Ethena may use AI risk systems)AI agents will dominate user experience; novelty will fade by 2026

Conclusion

The next chapter of DeFi will likely be shaped by efficient infrastructure, yield‑bearing assets, integration with traditional finance and AI‑driven user experiences. Jeff Yan focuses on building high‑throughput, community‑owned DEX infrastructure that can serve as a neutral base layer for tokenized assets. Stani Kulechov expects lower interest rates, fintech integration and real‑world assets to catalyze a new DeFi boom. Guy Young prioritizes yield‑bearing stablecoins and seamless payments, pushing DeFi into messaging apps and traditional banks. Haseeb Qureshi anticipates AI agents transforming wallets and regulatory clarity unlocking institutional capital, while cautioning against over‑hyped AI token narratives.

Collectively, these perspectives suggest that DeFi’s future will move beyond speculative farming toward mature, user‑centric financial products. Protocols must deliver real economic value, integrate with existing financial rails, and harness technological advances like AI and high‑performance blockchains. As these trends converge, DeFi may evolve from a niche ecosystem into a global, permissionless financial infrastructure.

World Liberty Financial: The Future of Money, Backed by USD1

· 11 min read
Dora Noda
Software Engineer

Overview of World Liberty Financial

World Liberty Financial (WLFI) is a decentralized‑finance (DeFi) platform created by members of the Trump family and their partners. According to the Trump Organization’s site, the platform aims to bridge traditional banking and blockchain technology by combining the stability of legacy finance with the transparency and accessibility of decentralized systems. Its mission is to provide modern services for money movement, lending and digital‑asset management while supporting dollar‑backed stability, making capital accessible to individuals and institutions, and simplifying DeFi for mainstream users.

WLFI launched its governance token ($WLFI) in September 2025 and introduced a dollar‑pegged stablecoin called USD1 in March 2025. The platform describes USD1 as a “future of money” stablecoin designed to serve as the base pair for tokenized assets and to promote U.S. dollar dominance in the digital economy. Co‑founder Donald Trump Jr. has framed WLFI as a non‑political venture intended to empower everyday people and strengthen the U.S. dollar’s global role.

History and Founding

  • Origins (2024–2025). WLFI was announced in September 2024 as a crypto venture led by members of the Trump family. The company launched its governance token WLFIlaterthatyear.AccordingtoReuters,theenterprisesinitialWLFI later that year. According to Reuters, the enterprise’s initial WLFI token sale raised only about $2.7 million, but sales surged after Donald Trump’s 2024 election victory (information referenced in widely cited reports, though not directly available in our sources). WLFI is majority‑owned by a Trump business entity and has nine co‑founders, including Donald Trump Jr., Eric Trump and Barron Trump.
  • Management. The Trump Organization describes WLFI’s leadership roles as: Donald Trump (Chief Crypto Advocate), Eric Trump and Donald Trump Jr. (Web3 Ambassadors), Barron Trump (DeFi visionary), and Zach Witkoff (CEO and co‑founder). The company’s daily operations are managed by Zach Witkoff and partners such as Zachary Folkman and Chase Herro.
  • Stablecoin initiative. WLFI announced the USD1 stablecoin in March 2025. USD1 was described as a dollar‑pegged stablecoin backed by U.S. Treasuries, U.S. dollar deposits and other cash equivalents. The coin’s reserves are custodied by BitGo Trust Company, a regulated digital‑asset custodian. USD1 launched on Binance’s BNB Chain and later expanded to Ethereum, Solana and Tron.

USD1 Stablecoin: Design and Features

Reserve model and stability mechanism

USD1 is designed as a fiat‑backed stablecoin with a 1:1 redemption mechanism. Each USD1 token is redeemable for one U.S. dollar, and the stablecoin’s reserves are held in short‑term U.S. Treasury bills, dollar deposits and cash equivalents. These assets are custodied by BitGo Trust, a regulated entity known for institutional digital‑asset custody. WLFI advertises that USD1 offers:

  1. Full collateralization and audits. The reserves are fully collateralized and subject to monthly third‑party attestations, providing transparency over backing assets. In May 2025, Binance Academy noted that regular reserve breakdowns were not yet publicly available and that WLFI had pledged third‑party audits.
  2. Institutional orientation. WLFI positions USD1 as an “institutional‑ready” stablecoin aimed at banks, funds and large companies, though it is also accessible to retail users.
  3. Zero mint/redeem fees. USD1 reportedly charges no fees for minting or redemption, reducing friction for users handling large volumes.
  4. Cross‑chain interoperability. The stablecoin uses Chainlink’s Cross‑Chain Interoperability Protocol (CCIP) to enable secure transfers across Ethereum, BNB Chain and Tron. Plans to expand to additional blockchains were confirmed through partnerships with networks like Aptos and Tron.

Market performance

  • Rapid growth. Within a month of launch, USD1’s market capitalization reached about **2.1billion,drivenbyhighprofileinstitutionaldealssuchasa2.1 billion**, driven by high‑profile institutional deals such as a 2 billion investment by Abu Dhabi’s MGX fund into Binance using USD1. By early October 2025 the supply had grown to roughly $2.68 billion, with most tokens issued on BNB Chain (79 %), followed by Ethereum, Solana and Tron.
  • Listing and adoption. Binance listed USD1 on its spot market in May 2025. WLFI touts widespread integration across DeFi protocols and centralised exchanges. DeFi platforms like ListaDAO, Venus Protocol and Aster support lending, borrowing and liquidity pools using USD1. WLFI emphasises that users can redeem USD1 for U.S. dollars through BitGo within one to two business days.

Institutional uses and tokenized asset plans

WLFI envisions USD1 as the default settlement asset for tokenized real‑world assets (RWAs). CEO Zach Witkoff has said that commodities such as oil, gas, cotton and timber should be traded on‑chain and that WLFI is actively working to tokenize these assets and pair them with USD1 because they require a trustworthy, transparent stablecoin. He described USD1 as “the most trustworthy and transparent stablecoin on Earth”.

Products and Services

Debit card and retail apps

At the TOKEN2049 conference in Singapore, Zach Witkoff announced that WLFI will release a crypto debit card that allows users to spend digital assets in everyday transactions. The company planned to launch a pilot program in the next quarter, with a full rollout expected in Q4 2025 or Q1 2026. CoinLaw summarized key details:

  • The card will link crypto balances to consumer purchases and is expected to integrate with services like Apple Pay.
  • WLFI is also developing a consumer‑facing retail app to complement the card.

Tokenization and investment products

Beyond payments, WLFI aims to tokenize real‑world commodities. Witkoff said they are exploring tokenization of oil, gas, timber and real estate to create blockchain‑based trading instruments. WLFI’s governance token (WLFI),launchedinSeptember2025,grantsholderstheabilitytovoteoncertaincorporatedecisions.Theprojecthasalsoformedstrategicpartnerships,includingALT5SigmasagreementtopurchaseWLFI), launched in September 2025, grants holders the ability to vote on certain corporate decisions. The project has also formed strategic partnerships, including ALT5 Sigma’s agreement to purchase 750 million of WLFI tokens as part of its treasury strategy.

Donald Trump Jr.’s Perspective

Co‑founder Donald Trump Jr. is a prominent public face of WLFI. His remarks at industry events and interviews reveal the motivations behind the project and his views on traditional finance, regulation and the U.S. dollar’s role.

Critique of traditional finance

  • “Broken” and undemocratic system. During a panel titled World Liberty Financial: The Future of Money, Backed by USD1 at the Token2049 conference, Trump Jr. argued that traditional finance is undemocratic and “broken.” He recounted that when his family entered politics, 300 of their bank accounts were eliminated overnight, illustrating how financial institutions can punish individuals for political reasons. He said the family moved from being at the top of the financial “pyramid” to the bottom, revealing that the system favours insiders and functions like a Ponzi scheme.
  • Inefficiency and lack of value. He criticised the traditional financial industry for being mired in inefficiencies, where people “making seven figures a year” merely push paperwork without adding real value.

Advocating for stablecoins and the dollar

  • Preserving dollar hegemony. Trump Jr. asserts that stablecoins like USD1 will backfill the role previously played by countries purchasing U.S. Treasuries. He told the Business Times that stablecoins could create “dollar hegemony” allowing the U.S. to lead globally and keep many places safe and sound. Speaking to Cryptopolitan, he argued that stablecoins actually preserve U.S. dollar dominance because demand for dollar‑backed tokens supports Treasuries at a time when conventional buyers (e.g., China and Japan) are reducing exposure.
  • Future of finance and DeFi. Trump Jr. described WLFI as the future of finance and emphasized that blockchain and DeFi technologies can democratize access to capital. At an ETH Denver event covered by Panews, he argued that clear regulatory frameworks are needed to prevent companies from moving offshore and to protect investors. He urged the U.S. to lead global crypto innovation and criticized excessive regulation for stifling growth.
  • Financial democratization. He believes combining traditional and decentralized finance through WLFI will provide liquidity, transparency and stability to underserved populations. He also highlights blockchain’s potential to eliminate corruption by making transactions transparent and on‑chain.
  • Advice to newcomers. Trump Jr. advises new investors to start with small amounts, avoid excessive leverage and engage in continuous learning about DeFi.

Political neutrality and media criticism

Trump Jr. stresses that WLFI is “100 % not a political organization” despite the Trump family’s deep involvement. He frames the venture as a platform to benefit Americans and the world rather than a political vehicle. During the Token2049 panel he criticized mainstream media outlets, saying they had discredited themselves, and Zach Witkoff asked the audience whether they considered The New York Times trustworthy.

Partnerships and Ecosystem Integration

MGX–Binance investment

In May 2025, WLFI announced that USD1 would facilitate a **2billioninvestmentbyAbuDhabibasedMGXintocryptoexchangeBinance.TheannouncementhighlightedWLFIsgrowinginfluenceandwastoutedasevidenceofUSD1sinstitutionalappeal.However,U.S.SenatorElizabethWarrencriticizedthedeal,callingitcorruptionbecausependingstablecoinlegislation(theGENIUSAct)couldbenefitthepresidentsfamily.CoinMarketCapdatacitedbyReutersshowedUSD1scirculatingvaluereachingabout2 billion investment** by Abu Dhabi‑based MGX into crypto exchange **Binance**. The announcement highlighted WLFI’s growing influence and was touted as evidence of USD1’s institutional appeal. However, U.S. Senator Elizabeth Warren criticized the deal, calling it “corruption” because pending stablecoin legislation (the GENIUS Act) could benefit the president’s family. CoinMarketCap data cited by Reuters showed USD1’s circulating value reaching about 2.1 billion at that time.

Aptos partnership

At the TOKEN2049 conference in October 2025, WLFI and layer‑1 blockchain Aptos announced a partnership to deploy USD1 on the Aptos network. Brave New Coin reports that WLFI selected Aptos because of its high throughput (transactions settle in under half a second) and fees under one‑hundredth of a cent. The collaboration aims to challenge dominant stablecoin networks by providing cheaper, faster rails for institutional transactions. CryptoSlate notes that USD1’s integration will make Aptos the fifth network to mint the stablecoin, with day‑one support from DeFi protocols such as Echelon Market and Hyperion as well as wallets and exchanges like Petra, Backpack and OKX. WLFI executives view the expansion as part of a broader strategy to grow DeFi adoption and to position USD1 as a settlement layer for tokenized assets.

Debit‑card and Apple Pay integration

Reuters and CoinLaw report that WLFI will launch a crypto debit card bridging crypto assets with everyday spending. Witkoff told Reuters that the company expects to roll out a pilot program within the next quarter, with a full launch by late 2025 or early 2026. The card will integrate with Apple Pay, and WLFI will release a retail app to simplify crypto payments.

Controversies and Criticisms

Reserve transparency. Binance Academy highlighted that, as of May 2025, USD1 lacked publicly available reserve breakdowns. WLFI promised third‑party audits, but the absence of detailed disclosures raised investor concerns.

Political conflicts of interest. WLFI’s deep ties to the Trump family have drawn scrutiny. A Reuters investigation reported that an anonymous wallet holding $2 billion in USD1 received funds shortly before the MGX investment, and the owners of the wallet could not be identified. Critics argue that the venture could allow the Trump family to benefit financially from regulatory decisions. Senator Elizabeth Warren warned that the stablecoin legislation being considered by Congress would make it easier for the president and his family to “line their own pockets”. Media outlets like The New York Times and The New Yorker have described WLFI as eroding the boundary between private enterprise and public policy.

Market concentration and liquidity concerns. CoinLaw reported that more than half of USD1’s liquidity came from just three wallets as of June 2025. Such concentration raises questions about the organic demand for USD1 and its resilience in stressed markets.

Regulatory uncertainty. Trump Jr. himself acknowledges that U.S. crypto regulation remains unclear and calls for comprehensive rules to prevent companies from moving offshore. Critics argue that WLFI benefits from deregulatory moves by the Trump administration while shaping policy that could favour its own financial interests.

Conclusion

World Liberty Financial positions itself as a pioneer at the intersection of traditional finance and decentralized technology, using the USD1 stablecoin as the backbone for payments, tokenization and DeFi products. The platform’s emphasis on institutional backing, cross‑chain interoperability and zero‑fee minting distinguishes USD1 from other stablecoins. Partnerships with networks like Aptos and major deals such as the MGX‑Binance investment underscore WLFI’s ambition to become a global settlement layer for tokenized assets.

From Donald Trump Jr.’s perspective, WLFI is not merely a commercial venture but a mission to democratize finance, preserve U.S. dollar hegemony and challenge what he sees as a broken and elitist traditional‑finance system. He champions regulatory clarity while criticizing excessive oversight, reflecting broader debates within the crypto industry. However, WLFI’s political associations, opaque reserve disclosures and concentration of liquidity invite skepticism. The company’s success will depend on balancing innovation with transparency and navigating the complex interplay between private interests and public policy.

Tokenized Stocks in 2025: Platforms, Regulation, and the Road Ahead

· 6 min read
Dora Noda
Software Engineer

Tokenized stocks have shifted from an experimental idea to a live market in 2025. Blue-chip equities, popular ETFs, and even shares of private companies are now mirrored on blockchains and traded around the clock. This guide breaks down how the instruments work, who is listing them, and where regulation is heading as Wall Street and Web3 converge.

What Are Tokenized Stocks and How Do They Work?

Tokenized stocks are blockchain tokens that track the economic value of real-world equities. Each token is backed by a share (or fraction of a share) held by a licensed custodian, so a tokenized Apple stock moves in lockstep with Apple Inc. shares on Nasdaq. Because they are issued as standard tokens (such as ERC-20 on Ethereum or SPL on Solana), they plug directly into crypto exchanges, wallets, and smart contracts. Issuers rely on oracles like Chainlink for price feeds and on-chain proof-of-reserve attestations so that investors can verify every token is backed 1:1.

Legally, most offerings operate like depository receipts or derivatives: token holders receive price exposure and dividends "where permitted," but they typically do not gain shareholder voting rights. That design keeps issuers compliant with securities rules in Switzerland, the European Union, and other supportive jurisdictions. In contrast, the United States still treats tokenized shares as regulated securities, forcing platforms either to exclude U.S. retail investors or to obtain full broker-dealer approvals.

The 2025 Token Menu: From FAANG to Private Unicorns

Availability has surged. Backed Finance alone listed more than 60 U.S. stocks and ETFs in mid-2025, covering names like Apple (AAPLX), Tesla (TSLAX), NVIDIA (NVDAX), Alphabet (GOOGLX), Coinbase (COINX), and S&P 500 trackers (SPYX). By August 2025, SPYX led the market with roughly $10 million in circulating supply, while TSLAX and CRCLX (Circle’s equity) followed in the mid-single-digit millions.

Issuers are also experimenting beyond public names. Robinhood’s EU crypto arm rolled out 200+ tokenized equities, including private companies such as OpenAI and SpaceX. Gemini’s first listing with Dinari was MicroStrategy (MSTRX), appealing to investors seeking indirect Bitcoin exposure. Tokens tied to sector ETFs, U.S. Treasury bond funds, and crypto-native companies (like DeFi Development Corp’s DFDVX) underline the widening scope.

Where Can You Trade Tokenized Stocks?

Regulated and Licensed Venues

  • Robinhood (EU) issues tokens on Arbitrum and lets verified European users trade more than 200 U.S. stocks and ETFs nearly 24/5. The pilot is commission-free and focuses on accessibility while keeping assets custodied inside the app for now.
  • Gemini (EU) x Dinari launched on Arbitrum with MicroStrategy and plans to expand to other Layer-2s such as Base. Customers can withdraw dShares to self-custody wallets, marrying compliance (FINRA-registered transfer agent, Malta MiFID license) with on-chain utility.
  • eToro is preparing ERC-20 versions of its top 100 U.S. listings. The roadmap includes two-way bridges so clients can withdraw tokens to DeFi or deposit them back for settlement as traditional shares, pending regulatory approvals.
  • Swarm Markets (Germany) combines BaFin oversight with permissioned DeFi. KYC’d users access Polygon-based tokens representing Apple, Tesla, and even Treasury ETFs, trading through AMM-style liquidity while staying inside a regulated perimeter.

Global Crypto Exchanges

  • Kraken, Bybit, KuCoin, and Bitget list Backed Finance’s xStocks. These ERC-20 tokens are bridged to Solana for low-latency trading against USDT. Fees mirror spot crypto (≈0.1–0.26%), and several exchanges already enable withdrawals to on-chain wallets for use in DeFi.
  • Liquidity is growing quickly: within the first month of launch, xStocks recorded more than $300 million in cumulative volume across CeFi and Solana DEX integrations. Still, spreads widen when U.S. markets close because market makers have limited hedging options after hours.

DeFi and Self-Custody

Once withdrawn, tokenized stocks can circulate on public chains. Holders can swap them on Solana’s Jupiter aggregator, seed liquidity pools, or post them as collateral in emerging lending markets. Liquidity is thinner than on centralized venues, and issuers caution that redemption may depend on complying with geographic restrictions. Synthetic stock protocols from the early 2020s have largely faded, giving way to asset-backed tokens with transparent custody.

Platform Comparison Snapshot

PlatformStatus & AccessNotable ListingsBlockchainFees & Features
Kraken (CeFi)Live for non-U.S. users with KYC~60 U.S. equities & ETFs via xStocksERC-20 bridged to SolanaStandard spot fees (~0.1–0.26%), 24/5 trading, withdrawals rolling out
Bybit (CeFi)Live for non-U.S. users with KYCSame xStocks roster as KrakenERC-20 bridged to Solana~0.1% fees, on-chain transfers supported
Robinhood (Broker, EU)Licensed in Lithuania, EU residents only200+ U.S. stocks, ETFs, plus private firmsArbitrumCommission-free, app-native experience, custodial during pilot
Gemini (CeFi)Available in 30+ EU countriesStarting with MicroStrategy, expanding rosterArbitrum (expanding to Base)Exchange fees (~0.2%+), on-chain withdrawals, FINRA transfer agent
eToro (Broker)Launching late 2025 in EU~100 top U.S. names plannedEthereum mainnetCommission-free trading, two-way token-to-share bridge in roadmap

Regulatory Momentum and Institutional Interest

The compliance landscape is evolving fast. European frameworks like MiCA, along with Swiss and German DLT statutes, give issuers clear guidance. The World Federation of Exchanges has urged crackdowns on unregulated venues, prompting exchanges to partner with licensed custodians and publish proof-of-reserve attestations.

In the U.S., SEC officials reiterate that tokenized equities remain securities. Platforms therefore geo-block American retail users, and companies such as Coinbase are lobbying for a formal pathway. A potential breakthrough came in September 2025 when Nasdaq petitioned the SEC to list tokenized versions of its equities, envisioning a future where traditional and blockchain-native settlement coexist.

Outlook: 24/7 Markets With Guardrails

Analysts expect real-world asset tokenization to balloon from roughly 0.6trillionin2025tonearly0.6 trillion in 2025 to nearly 19 trillion by 2033, with equities playing a starring role. Tokenized stocks promise fractional access, instant settlement, and composability with DeFi—but they still depend on trustworthy custodians and regulatory clarity.

Key trends to watch:

  1. Institutional adoption as exchanges and banks pilot tokenized settlement rails.
  2. Liquidity incentives to keep markets tight during off-hours, potentially via automated market-making schemes and reward programs.
  3. Enhanced investor protection, including insurance, transparent audits, and standardized redemption rights.
  4. Interoperability between tokenized and traditional share registries, enabling investors to move seamlessly between weekend trading and Monday morning sell orders on primary exchanges.

Tokenized stocks in 2025 feel like the early days of online brokerage: still rough around the edges but racing toward mainstream relevance. For builders, they unlock novel DeFi primitives that are legally anchored to real assets. For regulators, they offer a testing ground for modernizing capital markets. And for investors, they hint at a future where Wall Street never sleeps—provided the safeguards keep up with the innovation.

The Rise of Autonomous Capital

· 45 min read
Dora Noda
Software Engineer

AI-powered agents controlling their own cryptocurrency wallets are already managing billions in assets, making independent financial decisions, and reshaping how capital flows through decentralized systems. This convergence of artificial intelligence and blockchain technology—what leading thinkers call "autonomous capital"—represents a fundamental transformation in economic organization, where intelligent software can operate as self-sovereign economic actors without human intermediation. The DeFi AI (DeFAI) market reached 1billioninearly2025,whilethebroaderAIagentmarketpeakedat1 billion in early 2025, while the broader AI agent market peaked at 17 billion, demonstrating rapid commercial adoption despite significant technical, regulatory, and philosophical challenges. Five key thought leaders—Tarun Chitra (Gauntlet), Amjad Masad (Replit), Jordi Alexander (Selini Capital), Alexander Pack (Hack VC), and Irene Wu (Bain Capital Crypto)—are pioneering different approaches to this space, from automated risk management and development infrastructure to investment frameworks and cross-chain interoperability. Their work is creating the foundation for a future where AI agents may outnumber humans as primary blockchain users, managing portfolios autonomously and coordinating in decentralized networks—though this vision faces critical questions about accountability, security, and whether trustless infrastructure can support trustworthy AI decision-making.

What autonomous capital means and why it matters now

Autonomous capital refers to capital (financial assets, resources, decision-making power) controlled and deployed by autonomous AI agents operating on blockchain infrastructure. Unlike traditional algorithmic trading or automated systems requiring human oversight, these agents hold their own cryptocurrency wallets with private keys, make independent strategic decisions, and participate in decentralized finance protocols without continuous human intervention. The technology converges three critical innovations: AI's decision-making capabilities, crypto's programmable money and trustless execution, and smart contracts' ability to enforce agreements without intermediaries.

The technology has already arrived. As of October 2025, over 17,000 AI agents operate on Virtuals Protocol alone, with notable agents like AIXBT commanding 500millionvaluationsandTruthTerminalspawningthe500 million valuations and Truth Terminal spawning the GOAT memecoin that briefly reached $1 billion. Gauntlet's risk management platform analyzes 400+ million data points daily across DeFi protocols managing billions in total value locked. Replit's Agent 3 enables 200+ minutes of autonomous software development, while SingularityDAO's AI-managed portfolios delivered 25% ROI in two months through adaptive market-making strategies.

Why this matters: Traditional finance excludes AI systems regardless of sophistication—banks require human identity and KYC checks. Cryptocurrency wallets, by contrast, are generated through cryptographic key pairs accessible to any software agent. This creates the first financial infrastructure where AI can operate as independent economic actors, opening possibilities for machine-to-machine economies, autonomous treasury management, and AI-coordinated capital allocation at scales and speeds impossible for humans. Yet it also raises profound questions about who is accountable when autonomous agents cause harm, whether decentralized governance can manage AI risks, and if the technology will concentrate or democratize economic power.

The thought leaders shaping autonomous capital

Tarun Chitra: From simulation to automated governance

Tarun Chitra, CEO and co-founder of Gauntlet (valued at $1 billion), pioneered applying agent-based simulation from algorithmic trading and autonomous vehicles to DeFi protocols. His vision of "automated governance" uses AI-driven simulations to enable protocols to make decisions scientifically rather than through subjective voting alone. In his landmark 2020 article "Automated Governance: DeFi's Scientific Evolution," Chitra articulated how continuous adversarial simulation could create "a safer, more efficient DeFi ecosystem that's resilient to attacks and rewards honest participants fairly."

Gauntlet's technical implementation proves the concept at scale. The platform runs thousands of simulations daily against actual smart contract code, models profit-maximizing agents interacting within protocol rules, and provides data-driven parameter recommendations for $1+ billion in protocol assets. His framework involves codifying protocol rules, defining agent payoffs, simulating agent interactions, and optimizing parameters to balance macroscopic protocol health with microscopic user incentives. This methodology has influenced major DeFi protocols including Aave (4-year engagement), Compound, Uniswap, and Morpho, with Gauntlet publishing 27 research papers on constant function market makers, MEV analysis, liquidation mechanisms, and protocol economics.

Chitra's 2023 founding of Aera protocol advanced autonomous treasury management, enabling DAOs to respond quickly to market changes through "crowdsourced investment portfolio management." His recent focus on AI agents reflects predictions that they will "dominate on-chain financial activity" and that "AI will change the course of history in crypto" by 2025. From Token2049 appearances in London (2021), Singapore (2024, 2025), and regular podcast hosting on The Chopping Block, Chitra consistently emphasizes moving from subjective human governance to data-driven, simulation-tested decision-making.

Key insight: "Finance itself is fundamentally a legal practice—it's money plus law. Finance becomes more elegant with smart contracts." His work demonstrates that autonomous capital isn't about replacing humans entirely, but about using AI to make financial systems more scientifically rigorous through continuous simulation and optimization.

Amjad Masad: Building infrastructure for the network economy

Amjad Masad, CEO of Replit (valued at $3 billion as of October 2025), envisions a radical economic transformation where autonomous AI agents with crypto wallets replace traditional hierarchical software development with decentralized network economies. His viral 2022 Twitter thread predicted "monumental changes coming to software this decade," arguing AI represents the next 100x productivity boost enabling programmers to "command armies" of AI agents while non-programmers could also command agents for software tasks.

The network economy vision centers on autonomous agents as economic actors. In his Sequoia Capital podcast interview, Masad described a future where "software agents and I'm going to say, 'Okay. Well, I need to create this product.' And the agent is going to be like, 'Oh. Well, I'm going to go grab this database from this area, this thing that sends SMS or email from this area. And by the way, they're going to cost this much.' And as an agent I actually have a wallet, I'm going to be able to pay for them." This replaces the factory pipeline model with network-based composition where agents autonomously assemble services and value flows automatically through the network.

Replit's Agent 3, launched September 2025, demonstrates this vision technically with 10x more autonomy than predecessors—operating for 200+ minutes independently, self-testing and debugging through "reflection loops," and building other agents and automations. Real users report building 400ERPsystemsversus400 ERP systems versus 150,000 vendor quotes and 85% productivity increases. Masad predicts the "value of all application software will eventually 'go to zero'" as AI enables anyone to generate complex software on demand, transforming the nature of companies from specialized roles to "generalist problem solvers" augmented by AI agents.

On crypto's role, Masad strongly advocates Bitcoin Lightning Network integration, viewing programmable money as an essential platform primitive. He stated: "Bitcoin Lightning, for example, bakes value right into the software supply chain and makes it easier to transact both human-to-human and machine-to-machine. Driving the transaction cost and overhead in software down means that it will be a lot easier to bring developers into your codebase for one-off tasks." His vision of Web3 as "read-write-own-remix" and plans to consider native Replit currency as a platform primitive demonstrate deep integration between AI agent infrastructure and crypto-economic coordination.

Masad spoke at the Network State Conference (October 3, 2025) in Singapore immediately following Token2049, alongside Vitalik Buterin, Brian Armstrong, and Balaji Srinivasan, positioning him as a bridge between crypto and AI communities. His prediction: "Single-person unicorns" will become common when "everyone's a developer" through AI augmentation, fundamentally changing macroeconomics and enabling the "billion developer" future where 1 billion people globally create software.

Jordi Alexander: Judgment as currency in the AI age

Jordi Alexander, Founder/CIO of Selini Capital ($1 billion+ AUM) and Chief Alchemist at Mantle Network, brings game theory expertise from professional poker (won WSOP bracelet defeating Phil Ivey in 2024) to market analysis and autonomous capital investing. His thesis centers on "judgment as currency"—the uniquely human ability to integrate complex information and make optimal decisions that machines cannot replicate, even as AI handles execution and analysis.

Alexander's autonomous capital framework emphasizes convergence of "two key industries of this century: building intelligent foundational modules (like AI) and building the foundational layer for social coordination (like crypto technology)." He argues traditional retirement planning is obsolete due to real inflation (~15% annually vs. official rates), coming wealth redistribution, and the need to remain economically productive: "There is no such thing as retirement" for those under 50. His provocative thesis: "In the next 10 years, the gap between having 100,000and100,000 and 10 million may not be that significant. What's key is how to spend the next few years" positioning effectively for the "100x moment" when wealth creation accelerates dramatically.

His investment portfolio demonstrates conviction in AI-crypto convergence. Selini backed TrueNorth ($1M seed, June 2025), described as "crypto's first autonomous, AI-powered discovery engine" using "agentic workflows" and reinforcement learning for personalized investing. The firm's largest-ever check went to Worldcoin (May 2024), recognizing "the obvious need for completely new technological infra and solutions in the coming world of AI." Selini's 46-60 total investments include Ether.fi (liquid staking), RedStone (oracles), and market-making across centralized and decentralized exchanges, demonstrating systematic trading expertise applied to autonomous systems.

Token2049 participation includes London (November 2022) discussing "Reflections on the Latest Cycle's Wild Experiments," Dubai (May 2025) on liquid venture investing and memecoins, and Singapore appearances analyzing macro-crypto interplay. His Steady Lads podcast (92+ episodes through 2025) featured Vitalik Buterin discussing crypto-AI intersections, quantum risk, and Ethereum's evolution. Alexander emphasizes escaping "survival mode" to access higher-level thinking, upskilling constantly, and building judgment through experience as essential for maintaining economic relevance when AI agents proliferate.

Key perspective: "Judgment is the ability to integrate complex information and make optimal decisions—this is precisely where machines fall short." His vision sees autonomous capital as systems where AI executes at machine speed while humans provide strategic judgment, with crypto enabling the coordination layer. On Bitcoin specifically: "the only digital asset with true macro significance" projected for 5-10x growth over five years as institutional capital enters, viewing it as superior property rights protection versus vulnerable physical assets.

Alexander Pack: Infrastructure for decentralized AI economies

Alexander Pack, Co-Founder and Managing Partner at Hack VC (managing ~$590M AUM), describes Web3 AI as "the biggest source of alpha in investing today," allocating 41% of the firm's latest fund to AI-crypto convergence—the highest concentration among major crypto VCs. His thesis: "AI's rapid evolution is creating massive efficiencies, but also increasing centralization. The intersection of crypto and AI is by far the biggest investment opportunity in the space, offering an open, decentralized alternative."

Pack's investment framework treats autonomous capital as requiring four infrastructure layers: data (Grass investment—2.5BFDV),compute(io.net2.5B FDV), compute (io.net—2.2B FDV), execution (Movement Labs—7.9BFDV,EigenLayer7.9B FDV, EigenLayer—4.9B FDV), and security (shared security through restaking). The Grass investment demonstrates the thesis: a decentralized network of 2.5+ million devices performs web scraping for AI training data, already collecting 45TB daily (equivalent to ChatGPT 3.5 training dataset). Pack articulated: "Algorithms + Data + Compute = Intelligence. This means that Data and Compute will likely become two of the world's most important assets, and access to them will be incredibly important. Crypto is all about giving access to new digital resources around the world and asset-izing things that weren't assets before via tokens."

Hack VC's 2024 performance validates the approach: Second most active lead crypto VC, deploying 128Macrossdozensofdeals,with12cryptoxAIinvestmentsproducing4unicornsin2024alone.MajortokenlaunchesincludeMovementLabs(128M across dozens of deals, with 12 crypto x AI investments producing 4 unicorns in 2024 alone. Major token launches include Movement Labs (7.9B), EigenLayer (4.9B),Grass(4.9B), Grass (2.5B), io.net (2.2B),Morpho(2.2B), Morpho (2.4B), Kamino (1.0B),andAltLayer(1.0B), and AltLayer (0.9B). The firm operates Hack.Labs, an in-house platform for institutional-grade network participation, staking, quantitative research, and open-source contributions, employing former Jane Street senior traders.

From his March 2024 Unchained podcast appearance, Pack identified AI agents as capital allocators that "can autonomously manage portfolios, execute trades, and optimize yield," with DeFi integration enabling "AI agents with crypto wallets participating in decentralized financial markets." He emphasized "we are still so early" in crypto infrastructure, requiring significant improvements in scalability, security, and user experience before mainstream adoption. Token2049 Singapore 2025 confirmed Pack as a speaker (October 1-2), participating in expert discussion panels on crypto and AI topics at the premier Asia crypto event with 25,000+ attendees.

The autonomous capital framework (synthesized from Hack VC's investments and publications) envisions five layers: Intelligence (AI models), Data & Compute Infrastructure (Grass, io.net), Execution & Verification (Movement, EigenLayer), Financial Primitives (Morpho, Kamino), and Autonomous Agents (portfolio management, trading, market-making). Pack's key insight: Decentralized, transparent systems proved more resilient than centralized finance during 2022 bear markets (DeFi protocols survived while Celsius, BlockFi, FTX collapsed), suggesting blockchain better suited for AI-driven capital allocation than opaque centralized alternatives.

Irene Wu: Omnichain infrastructure for autonomous systems

Irene Wu, Venture Partner at Bain Capital Crypto and former Head of Strategy at LayerZero Labs, brings unique technical expertise to autonomous capital infrastructure, having coined the term "omnichain" to describe cross-chain interoperability via messaging. Her investment portfolio strategically positions at AI-crypto convergence: Cursor (AI-first code editor), Chaos Labs (Artificial Financial Intelligence), Ostium (leveraged trading platform), and Econia (DeFi infrastructure), demonstrating focus on verticalized AI applications and autonomous financial systems.

Wu's LayerZero contributions established foundational cross-chain infrastructure enabling autonomous agents to operate seamlessly across blockchains. She championed three core design principles—Immutability, Permissionlessness, and Censorship Resistance—and developed OFT (Omnichain Fungible Token) and ONFT (Omnichain Non-Fungible Token) standards. The Magic Eden partnership she led created "Gas Station," enabling seamless gas token conversion for cross-chain NFT purchases, demonstrating practical reduction of friction in decentralized systems. Her positioning of LayerZero as "TCP/IP for blockchains" captures the vision of universal interoperability protocols underlying agent economies.

Wu's consistent emphasis on removing friction from Web3 experiences directly supports autonomous capital infrastructure. She advocates chain abstraction—users shouldn't need to understand which blockchain they're using—and pushes for "10X better experiences to justify blockchain complexity." Her critique of crypto's research methods ("seeing on Twitter who's complaining the most") versus proper Web2-style user research interviews reflects commitment to user-centric design principles essential for mainstream adoption.

Investment thesis indicators from her portfolio reveal focus on AI-augmented development (Cursor enables AI-native coding), autonomous financial intelligence (Chaos Labs applies AI to DeFi risk management), trading infrastructure (Ostium provides leveraged trading), and DeFi primitives (Econia builds foundational protocols). This pattern strongly aligns with autonomous capital requirements: AI agents need development tools, financial intelligence capabilities, trading execution infrastructure, and foundational DeFi protocols to operate effectively.

While specific Token2049 participation wasn't confirmed in available sources (social media access restricted), Wu's speaking engagements at Consensus 2023 and Proof of Talk Summit demonstrate thought leadership in blockchain infrastructure and developer tools. Her technical background (Harvard Computer Science, software engineering at J.P. Morgan, co-founder of Harvard Blockchain Club) combined with strategic roles at LayerZero and Bain Capital Crypto positions her as a critical voice on the infrastructure requirements for AI agents operating in decentralized environments.

Theoretical foundations: Why AI and crypto enable autonomous capital

The convergence enabling autonomous capital rests on three technical pillars solving fundamental coordination problems. First, cryptocurrency provides financial autonomy impossible in traditional banking systems. AI agents can generate cryptographic key pairs to "open their own bank account" with zero human approval, accessing permissionless 24/7 global settlement and programmable money for complex automated operations. Traditional finance categorically excludes non-human entities regardless of capability; crypto is the first financial infrastructure treating software as legitimate economic actors.

Second, trustless computational substrates enable verifiable autonomous execution. Blockchain smart contracts provide Turing-complete global computers with decentralized validation ensuring tamper-proof execution where no single operator controls outcomes. Trusted Execution Environments (TEEs) like Intel SGX provide hardware-based secure enclaves isolating code from host systems, enabling confidential computation with private key protection—critical for agents since "neither cloud administrators nor malicious node operators can 'reach into the jar.'" Decentralized Physical Infrastructure Networks (DePIN) like io.net and Phala Network combine TEEs with crowd-sourced hardware to create permissionless, distributed AI compute.

Third, blockchain-based identity and reputation systems give agents persistent personas. Self-Sovereign Identity (SSI) and Decentralized Identifiers (DIDs) enable agents to hold their own "digital passports," with verifiable credentials proving skills and on-chain reputation tracking creating immutable track records. Proposed "Know Your Agent" (KYA) protocols adapt KYC frameworks for machine identities, while emerging standards like Model Context Protocol (MCP), Agent Communication Protocol (ACP), Agent-to-Agent Protocol (A2A), and Agent Network Protocol (ANP) enable agent interoperability.

The economic implications are profound. Academic frameworks like the "Virtual Agent Economies" paper from researchers including Nenad Tomasev propose analyzing emergent AI agent economic systems along origins (emergent vs. intentional) and separateness (permeable vs. impermeable from human economy). Current trajectory: spontaneous emergence of vast, highly permeable AI agent economies with opportunities for unprecedented coordination but significant risks including systemic economic instability and exacerbated inequality. Game-theoretic considerations—Nash equilibria in agent-agent negotiations, mechanism design for fair resource allocation, auction mechanisms for resources—become critical as agents operate as rational economic actors with utility functions, making strategic decisions in multi-agent environments.

The market demonstrates explosive adoption. AI agent tokens reached 10+billionmarketcapsbyDecember2024,surging32210+ billion market caps by December 2024, surging 322% in late 2024. Virtuals Protocol launched 17,000+ tokenized AI agents on Base (Ethereum L2), while ai16z operates a 2.3 billion market cap autonomous venture fund on Solana. Each agent issues tokens enabling fractional ownership, revenue sharing through staking, and community governance—creating liquid markets for AI agent performance. This tokenization model enables "co-ownership" of autonomous agents, where token holders gain economic exposure to agent activities while agents gain capital to deploy autonomously.

Philosophically, autonomous capital challenges fundamental assumptions about agency, ownership, and control. Traditional agency requires control/freedom conditions (no coercion), epistemic conditions (understanding actions), moral reasoning capacity, and stable personal identity. LLM-based agents raise questions: Do they truly "intend" or merely pattern-match? Can probabilistic systems be held responsible? Research participants note agents "are probabilistic models incapable of responsibility or intent; they cannot be 'punished' or 'rewarded' like human players" and "lack a body to experience pain," meaning conventional deterrence mechanisms fail. The "trustless paradox" emerges: deploying agents in trustless infrastructure avoids trusting fallible humans, but the AI agents themselves remain potentially untrustworthy (hallucinations, biases, manipulation), and trustless substrates prevent intervention when AI misbehaves.

Vitalik Buterin identified this tension, noting "Code is law" (deterministic smart contracts) conflicts with LLM hallucinations (probabilistic outputs). Four "invalidities" govern decentralized agents according to research: territorial jurisdictional invalidity (borderless operation defeats single-nation laws), technical invalidity (architecture resists external control), enforcement invalidity (can't stop agents after sanctioning deployers), and accountability invalidity (agents lack legal personhood, can't be sued or charged). Current experimental approaches like Truth Terminal's charitable trust with human trustees attempt separating ownership from agent autonomy while maintaining developer responsibility tied to operational control.

Predictions from leading thinkers converge on transformative scenarios. Balaji Srinivasan argues "AI is digital abundance, crypto is digital scarcity"—complementary forces where AI creates content while crypto coordinates and proves value, with crypto enabling "proof of human authenticity in world of AI deepfakes." Sam Altman's observation that AI and crypto represent "indefinite abundance and definite scarcity" captures their symbiotic relationship. Ali Yahya (a16z) synthesizes the tension: "AI centralizes, crypto decentralizes," suggesting need for robust governance managing autonomous agent risks while preserving decentralization benefits. The a16z vision of a "billion-dollar autonomous entity"—a decentralized chatbot running on permissionless nodes via TEEs, building following, generating income, managing assets without human control—represents the logical endpoint where no single point of control exists and consensus protocols coordinate the system.

Technical architecture: How autonomous capital actually works

Implementing autonomous capital requires sophisticated integration of AI models with blockchain protocols through hybrid architectures balancing computational power against verifiability. The standard approach uses three-layer architecture: perception layer gathering blockchain and external data via oracle networks (Chainlink handles 5+ billion data points daily), reasoning layer conducting off-chain AI model inference with zero-knowledge proofs of computation, and action layer executing transactions on-chain through smart contracts. This hybrid design addresses fundamental blockchain constraints—gas limits preventing heavy AI computation on-chain—while maintaining trustless execution guarantees.

Gauntlet's implementation demonstrates production-ready autonomous capital at scale. The platform's technical architecture includes cryptoeconomic simulation engines running thousands of agent-based models daily against actual smart contract code, quantitative risk modeling using ML models trained on 400+ million data points refreshed 6 times daily across 12+ Layer 1 and Layer 2 blockchains, and automated parameter optimization dynamically adjusting collateral ratios, interest rates, liquidation thresholds, and fee structures. Their MetaMorpho vault system on Morpho Blue provides elegant infrastructure for permissionless vault creation with externalized risk management, enabling Gauntlet's WETH Prime and USDC Prime vaults to optimize risk-adjusted yield across liquid staking recursive yield markets. The basis trading vaults combine LST spot assets with perpetual funding rates at up to 2x dynamic leverage when market conditions create favorable spreads, demonstrating sophisticated autonomous strategies managing real capital.

Zero-knowledge machine learning (zkML) enables trustless AI verification. The technology proves ML model execution without revealing model weights or input data using ZK-SNARKs and ZK-STARKs proof systems. Modulus Labs benchmarked proving systems across model sizes, demonstrating models with up to 18 million parameters provable in ~50 seconds using plonky2. EZKL provides open-source frameworks converting ONNX models to ZK circuits, used by OpenGradient for decentralized ML inference. RiscZero offers general-purpose zero-knowledge VMs enabling verifiable ML computation integrated with DeFi protocols. The architecture flows: input data → ML model (off-chain) → output → ZK proof generator → proof → smart contract verifier → accept/reject. Use cases include verifiable yield strategies (Giza + Yearn collaboration), on-chain credit scoring, private model inference on sensitive data, and proof of model authenticity.

Smart contract structures enabling autonomous capital include Morpho's permissionless vault deployment system with customizable risk parameters, Aera's V3 protocol for programmable vault rules, and integration with Pyth Network oracles providing sub-second price feeds. Technical implementation uses Web3 interfaces (ethers.js, web3.py) connecting AI agents to blockchain via RPC providers, with automated transaction signing using cryptographically secured multi-party computation (MPC) wallets splitting private keys across participants. Account abstraction (ERC-4337) enables programmable account logic, allowing sophisticated permission systems where AI agents can execute specific actions without full wallet control.

The Fetch.ai uAgents framework demonstrates practical agent development with Python libraries enabling autonomous economic agents registered on Almanac smart contracts. Agents operate with cryptographically secured messages, automated blockchain registration, and interval-based execution handling market analysis, signal generation, and trade execution. Example implementations show market analysis agents fetching oracle prices, conducting ML model inference, and executing on-chain trades when confidence thresholds are met, with inter-agent communication enabling multi-agent coordination for complex strategies.

Security considerations are critical. Smart contract vulnerabilities including reentrancy attacks, arithmetic overflow/underflow, access control issues, and oracle manipulation have caused 11.74+billioninlossessince2017,with11.74+ billion in losses since 2017, with 1.5 billion lost in 2024 alone. AI agent-specific threats include prompt injection (malicious inputs manipulating agent behavior), oracle manipulation (compromised data feeds misleading decisions), context manipulation (adversarial attacks exploiting external inputs), and credential leakage (exposed API keys or private keys). Research from University College London and University of Sydney demonstrated the A1 system—an AI agent autonomously discovering and exploiting smart contract vulnerabilities with 63% success rate on 36 real-world vulnerable contracts, extracting up to 8.59millionperexploitat8.59 million per exploit at 0.01-$3.59 cost, proving AI agents favor exploitation over defense economically.

Security best practices include formal verification of smart contracts, extensive testnet testing, third-party audits (Cantina, Trail of Bits), bug bounty programs, real-time monitoring with circuit breakers, time-locks on critical operations, multi-signature requirements for large transactions, Trusted Execution Environments (Phala Network), sandboxed code execution with syscall filtering, network restrictions, and rate limiting. The defensive posture must be paranoid-level rigorous as attackers achieve profitability at 6,000exploitvalueswhiledefendersrequire6,000 exploit values while defenders require 60,000 to break even, creating fundamental economic asymmetry favoring attacks.

Scalability and infrastructure requirements create bottlenecks. Ethereum's ~30 million gas per block, 12-15 second block times, high fees during congestion, and 15-30 TPS throughput cannot support ML model inference directly. Solutions include Layer 2 networks (Arbitrum/Optimism rollups reducing costs 10-100x, Base with native agent support, Polygon sidechains), off-chain computation with on-chain verification, and hybrid architectures. Infrastructure requirements include RPC nodes (Alchemy, Infura, NOWNodes), oracle networks (Chainlink, Pyth, API3), decentralized storage (IPFS for model weights), GPU clusters for ML inference, and 24/7 monitoring with low latency and high reliability. Operational costs range from RPC calls (00-500+/month), compute (100100-10,000+/month for GPU instances), to highly variable gas fees (11-1,000+ per complex transaction).

Current performance benchmarks show zkML proving 18-million parameter models in 50 seconds on powerful AWS instances, Internet Computer Protocol achieving 10X+ improvements with Cyclotron optimization for on-chain image classification, and Bittensor operating 80+ active subnets with validators evaluating ML models. Future developments include hardware acceleration through specialized ASIC chips for ZK proof generation, GPU subnets in ICP for on-chain ML, improved account abstraction, cross-chain messaging protocols (LayerZero, Wormhole), and emerging standards like Model Context Protocol for agent interoperability. The technical maturity is advancing rapidly, with production systems like Gauntlet proving billion-dollar TVL viability, though limitations remain around large language model size, zkML latency, and gas costs for frequent operations.

Real-world implementations: What's actually working today

SingularityDAO demonstrates AI-managed portfolio performance with quantifiable results. The platform's DynaSets—dynamically managed asset baskets automatically rebalanced by AI—achieved 25% ROI in two months (October-November 2022) through adaptive multi-strategy market-making, and 20% ROI for weekly and bi-weekly strategy evaluation of BTC+ETH portfolios, with weighted fund allocation delivering higher returns than fixed allocation. Technical architecture includes backtesting on 7 days of historical market data, predictive strategies based on social media sentiment, algorithmic trading agents for liquidity provision, and active portfolio management including portfolio planning, balancing, and trading. The Risk Engine evaluates numerous risks for optimal decision-making, with the Dynamic Asset Manager conducting AI-based automated rebalancing. Currently three active DynaSets operate (dynBTC, dynETH, dynDYDX) managing live capital with transparent on-chain performance.

Virtuals Protocol (1.8billionmarketcap)leadsAIagenttokenizationwith17,000+agentslaunchedontheplatformasofearly2025.Eachagentreceives1billiontokensminted,generatesrevenuethrough"inferencefees"fromchatinteractions,andgrantsgovernancerightstotokenholders.NotableagentsincludeLuna(LUNA)with1.8 billion market cap) leads AI agent tokenization with 17,000+ agents launched on the platform as of early 2025. Each agent receives 1 billion tokens minted, generates revenue through "inference fees" from chat interactions, and grants governance rights to token holders. Notable agents include Luna (LUNA) with 69 million market cap—a virtual K-pop star and live streamer with 1 million TikTok followers generating revenue through entertainment; AIXBT at 0.21providingAIdrivenmarketinsightswith240,000+Twitterfollowersandstakingmechanisms;andVaderAI(VADER)at0.21—providing AI-driven market insights with 240,000+ Twitter followers and staking mechanisms; and VaderAI (VADER) at 0.05—offering AI monetization tools and DAO governance. The GAME Framework (Generative Autonomous Multimodal Entities) provides technical foundation, while the Agent Commerce Protocol creates open standards for agent-to-agent commerce with Immutable Contribution Vault (ICV) maintaining historical ledgers of approved contributions. Partnerships with Illuvium integrate AI agents into gaming ecosystems, and security audits addressed 7 issues (3 medium, 4 low severity).

ai16z operates as an autonomous venture fund with 2.3billionmarketcaponSolana,buildingtheELIZAframeworkthemostwidelyadoptedopensourcemodulararchitectureforAIagentswiththousandsofdeployments.Theplatformenablesdecentralized,collaborativedevelopmentwithpluginecosystemsdrivingnetworkeffects:moredeveloperscreatemoreplugins,attractingmoredevelopers.Atrustmarketplacesystemaddressesautonomousagentaccountability,whileplansforadedicatedblockchainspecificallyforAIagentsdemonstratelongterminfrastructurevision.Thefundoperateswithdefinedexpiration(October2025)and2.3 billion market cap on Solana, building the ELIZA framework—the most widely adopted open-source modular architecture for AI agents with thousands of deployments. The platform enables decentralized, collaborative development with plugin ecosystems driving network effects: more developers create more plugins, attracting more developers. A trust marketplace system addresses autonomous agent accountability, while plans for a dedicated blockchain specifically for AI agents demonstrate long-term infrastructure vision. The fund operates with defined expiration (October 2025) and 22+ million locked, demonstrating time-bound autonomous capital management.

Gauntlet's production infrastructure manages $1+ billion in DeFi protocol TVL through continuous simulation and optimization. The platform monitors 100+ DeFi protocols with real-time risk assessment, conducts agent-based simulations for protocol behavior under stress, and provides dynamic parameter adjustments for collateral ratios, liquidation thresholds, interest rate curves, fee structures, and incentive programs. Major protocol partnerships include Aave (4-year engagement ended 2024 due to governance disagreements), Compound (pioneering automated governance implementation), Uniswap (liquidity and incentive optimization), Morpho (current vault curation partnership), and Seamless Protocol (active risk monitoring). The vault curation framework includes market analysis monitoring emerging yield opportunities, risk assessment evaluating liquidity and smart contract risk, strategy design creating optimal allocations, automated execution to MetaMorpho vaults, and continuous optimization through real-time rebalancing. Performance metrics demonstrate the platform's update frequency (6 times daily), data volume (400+ million points across 12+ blockchains), and methodology sophistication (Value-at-Risk capturing broad market downturns, broken correlation risks like LST divergence and stablecoin depegs, and tail risk quantification).

Autonomous trading bots show mixed but improving results. Gunbot users report starting with 496USDonFebruary26andgrowingto496 USD on February 26 and growing to 1,358 USD (+174%) running on 20 pairs on dYdX with self-hosted execution eliminating third-party risk. Cryptohopper users achieved 35% annual returns in volatile markets through 24/7 cloud-based automated trading with AI-powered strategy optimization and social trading features. However, overall statistics reveal 75-89% of bot customers lose funds with only 11-25% earning profits, highlighting risks from over-optimization (curve-fitting to historical data), market volatility and black swan events, technical glitches (API failures, connectivity issues), and improper user configuration. Major failures include Banana Gun exploit (September 2024, 563 ETH/1.9millionlossviaoraclevulnerability),Genesiscreditorsocialengineeringattack(August2024,1.9 million loss via oracle vulnerability), Genesis creditor social engineering attack (August 2024, 243 million loss), and Dogwifhat slippage incident (January 2024, $5.7 million loss in thin order books).

Fetch.ai enables autonomous economic agents with 30,000+ active agents as of 2024 using the uAgents framework. Applications include transportation booking automation, smart energy trading (buying off-peak electricity, reselling excess), supply chain optimization through agent-based negotiations, and partnerships with Bosch (Web3 mobility use cases) and Yoti (identity verification for agents). The platform raised 40millionin2023,positioningwithintheautonomousAImarketprojectedtoreach40 million in 2023, positioning within the autonomous AI market projected to reach 70.53 billion by 2030 (42.8% CAGR). DeFi applications announced in 2023 include agent-based trading tools for DEXs eliminating liquidity pools in favor of agent-based matchmaking, enabling direct peer-to-peer trading removing honeypot and rugpull risks.

DAO implementations with AI components demonstrate governance evolution. The AI DAO operates Nexus EVM-based DAO management on XRP EVM sidechain with AI voting irregularity detection ensuring fair decision-making, governance assistance where AI helps decisions while humans maintain oversight, and an AI Agent Launchpad with decentralized MCP node networks enabling agents to manage wallets and transact across Axelar blockchains. Aragon's framework envisions six-tiered AI x DAO integration: AI bots and assistants (current), AI at the edge voting on proposals (near-term), AI at the center managing treasury (medium-term), AI connectors creating swarm intelligence between DAOs (medium-term), DAOs governing AI as public good (long-term), and AI becoming the DAO with on-chain treasury ownership (future). Technical implementation uses Aragon OSx modular plugin system with permission management allowing AI to trade below dollar thresholds while triggering votes above, and ability to switch AI trading strategies by revoking/granting plugin permissions.

Market data confirms rapid adoption and scale. The DeFAI market reached ~1billionmarketcapinJanuary2025,withAIagentmarketspeakingat1 billion market cap in January 2025, with AI agent markets peaking at 17 billion. DeFi total value locked stands at 52billion(institutionalTVL:52 billion (institutional TVL: 42 billion), while MetaMask serves 30 million users with 21 million monthly active. Blockchain spending reached 19billionin2024withprojectionsto19 billion in 2024 with projections to 1,076 billion by 2026. The global DeFi market of 20.4832.36billion(20242025)projectsgrowthto20.48-32.36 billion (2024-2025) projects growth to 231-441 billion by 2030 and $1,558 billion by 2034, representing 40-54% CAGR. Platform-specific metrics include Virtuals Protocol with 17,000+ AI agents launched, Fetch.ai Burrito integration onboarding 400,000+ users, and autonomous trading bots like SMARD surpassing Bitcoin by \u003e200% and Ethereum by \u003e300% in profitability from start of 2022.

Lessons from successes and failures clarify what works. Successful implementations share common patterns: specialized agents outperform generalists (Griffain's multi-agent collaboration more reliable than single AI), human-in-the-loop oversight proves critical for unexpected events, self-custody designs eliminate counterparty risk, comprehensive backtesting across multiple market regimes prevents over-optimization, and robust risk management with position sizing rules and stop-loss mechanisms prevents catastrophic losses. Failures demonstrate that black box AI lacking transparency fails to build trust, pure autonomy currently cannot handle market complexity and black swan events, ignoring security leads to exploits, and unrealistic promises of "guaranteed returns" indicate fraudulent schemes. The technology works best as human-AI symbiosis where AI handles speed and execution while humans provide strategy and judgment.

The broader ecosystem: Players, competition, and challenges

The autonomous capital ecosystem has rapidly expanded beyond the five profiled thought leaders to encompass major platforms, institutional players, competing philosophical approaches, and sophisticated regulatory challenges. Virtuals Protocol and ai16z represent the "Cathedral vs. Bazaar" philosophical divide. Virtuals (1.8Bmarketcap)takesacentralized,methodicalapproachwithstructuredgovernanceandqualitycontrolledprofessionalmarketplaces,cofoundedbyEtherMageandutilizingImmutableContributionVaultsfortransparentattribution.ai16z(1.8B market cap) takes a centralized, methodical approach with structured governance and quality-controlled professional marketplaces, co-founded by EtherMage and utilizing Immutable Contribution Vaults for transparent attribution. ai16z (2.3B market cap) embraces decentralized, collaborative development through open-source ELIZA framework enabling rapid experimentation, led by Shaw (self-taught programmer) building dedicated blockchain for AI agents with trust marketplaces for accountability. This philosophical tension—precision versus innovation, control versus experimentation—mirrors historical software development debates and will likely persist as the ecosystem matures.

Major protocols and infrastructure providers include SingularityNET operating decentralized AI marketplaces enabling developers to monetize AI models with crowdsourced investment decision-making (Numerai hedge fund model), Fetch.ai deploying autonomous agents for transportation and service streamlining with $10 million accelerator for AI agent startups, Autonolas bridging offchain AI agents to onchain protocols creating permissionless application marketplaces, ChainGPT developing AI Virtual Machine (AIVM) for Web3 with automated liquidity management and trading execution, and Warden Protocol building Layer-1 blockchain for AI-integrated applications where smart contracts access and verify AI model outputs onchain with partnerships including Messari, Venice, and Hyperlane.

Institutional adoption accelerates despite caution. Galaxy Digital pivots from crypto mining to AI infrastructure with 175millionventurefundand175 million venture fund and 4.5 billion revenue expected from 15-year CoreWeave deal providing 200MW data center capacity. Major financial institutions experiment with agentic AI: JPMorgan Chase's LAW (Legal Agentic Workflows) achieves 92.9% accuracy, BNY implements autonomous coding and payment validation, while Mastercard, PayPal, and Visa pursue agentic commerce initiatives. Research and analysis firms including Messari, CB Insights (tracking 1,400+ tech markets), Deloitte, McKinsey, and S\u0026P Global Ratings provide critical ecosystem intelligence on autonomous agents, AI-crypto intersection, enterprise adoption, and risk assessment.

Competing visions manifest across multiple dimensions. Business model variations include token-based DAOs with transparent community voting (MakerDAO, MolochDAO) facing challenges from token concentration where less than 1% of holders control 90% of voting power, equity-based DAOs resembling corporate structures with blockchain transparency, and hybrid models combining token liquidity with ownership stakes balancing community engagement against investor returns. Regulatory compliance approaches range from proactive compliance seeking clarity upfront, regulatory arbitrage operating in lighter-touch jurisdictions, to wait-and-see strategies building first and addressing regulation later. These strategic choices create fragmentation and competitive dynamics as projects optimize for different constraints.

The regulatory landscape grows increasingly complex and constraining. United States developments include SEC Crypto Task Force led by Commissioner Hester Pierce, AI and crypto regulation as 2025 examination priority, President's Working Group on Digital Assets (60-day review, 180-day recommendations), David Sacks appointed Special Advisor for AI and Crypto, and SAB 121 rescinded easing custody requirements for banks. Key SEC concerns include securities classification under Howey Test, Investment Advisers Act applicability to AI agents, custody and fiduciary responsibility, and AML/KYC requirements. CFTC Acting Chairwoman Pham supports responsible innovation while focusing on commodities markets and derivatives. State regulations show innovation with Wyoming first recognizing DAOs as legal entities (July 2021) and New Hampshire entertaining DAO legislation, while New York DFS issued cybersecurity guidance for AI risks (October 2024).

European Union MiCA regulation creates comprehensive framework with implementation timeline: June 2023 entered force, June 30, 2024 stablecoin provisions applied, December 30, 2024 full application for Crypto Asset Service Providers with 18-month transition for existing providers. Key requirements include mandatory whitepapers for token issuers, capital adequacy and governance structures, AML/KYC compliance, custody and reserve requirements for stablecoins, Travel Rule transaction traceability, and passporting rights across EU for licensed providers. Current challenges include France, Austria, and Italy calling for stronger enforcement (September 2025), uneven implementation across member states, regulatory arbitrage concerns, overlap with PSD2/PSD3 payment regulations, and restrictions on non-MiCA compliant stablecoins. DORA (Digital Operational Resilience Act) applicable January 17, 2025 adds comprehensive operational resilience frameworks and mandatory cybersecurity measures.

Market dynamics demonstrate both euphoria and caution. 2024 venture capital activity saw 8billioninvestedincryptoacrossfirstthreequarters(flatversus2023),withQ32024showing8 billion invested in crypto across first three quarters (flat versus 2023), with Q3 2024 showing 2.4 billion across 478 deals (-20% QoQ), but AI x Crypto projects receiving 270millioninQ3(5xincreasefromQ2).SeedstageAIautonomousagentsattracted270 million in Q3 (5x increase from Q2). Seed-stage AI autonomous agents attracted 700 million in 2024-2025, with median pre-money valuations reaching record 25millionandaveragedealsizesof25 million and average deal sizes of 3.5 million. 2025 Q1 saw 80.1billionraised(2880.1 billion raised (28% QoQ increase driven by 40 billion OpenAI deal), with AI representing 74% of IT sector investment despite declining deal volumes. Geographic distribution shows U.S. dominating with 56% of capital and 44% of deals, Asia growth in Japan (+2%), India (+1%), South Korea (+1%), and China declining -33% YoY.

Valuations reveal disconnects from fundamentals. Top AI agent tokens including Virtuals Protocol (up 35,000% YoY to 1.8B),ai16z(+1761.8B), ai16z (+176% in one week to 2.3B), AIXBT (~500M),andBinancefutureslistingsforZerebroandGriffaindemonstratespeculativefervor.Highvolatilitywithflashcrasheswiping500M), and Binance futures listings for Zerebro and Griffain demonstrate speculative fervor. High volatility with flash crashes wiping 500 million in leveraged positions in single weeks, rapid token launches via platforms like pump.fun, and "AI agent memecoins" as distinct category suggest bubble characteristics. Traditional VC concerns focus on crypto trading at ~250x price-to-sales versus Nasdaq 6.25x and S\u0026P 3.36x, institutional allocators remaining cautious post-2022 collapses, and "revenue meta" emerging requiring proven business models.

Criticisms cluster around five major areas. Technical and security concerns include wallet infrastructure vulnerabilities with most DeFi platforms requiring manual approvals creating catastrophic risks, algorithmic failures like Terra/Luna $2 billion liquidation, infinite feedback loops between agents, cascading multi-agent system failures, data quality and bias issues perpetuating discrimination, and manipulation vulnerabilities through poisoned training data. Governance and accountability issues manifest through token concentration defeating decentralization (less than 1% controlling 90% voting power), inactive shareholders disrupting functionality, susceptibility to hostile takeovers (Build Finance DAO drained 2022), accountability gaps about liability for agent harm, explainability challenges, and "rogue agents" exploiting programming loopholes.

Market and economic criticisms focus on valuation disconnect with crypto's 250x P/S versus traditional 6-7x, bubble concerns resembling ICO boom/bust cycles, many agents as "glorified chatbots," speculation-driven rather than utility-driven adoption, limited practical utility with most agents currently simple Twitter influencers, cross-chain interoperability poor, and fragmented agentic frameworks impeding adoption. Systemic and societal risks include Big Tech concentration with heavy reliance on Microsoft/OpenAI/cloud services (CrowdStrike outage July 2024 highlighted interdependencies), 63% of AI models using public cloud for training reducing competition, significant energy consumption for model training, 92 million jobs displaced by 2030 despite 170 million new jobs projected, and financial crime risks from AML/KYC challenges with autonomous agents enabling automated money laundering.

The "Gen AI paradox" captures deployment challenges: 79% enterprise adoption but 78% report no significant bottom-line impact. MIT reports 95% of AI pilots fail due to poor data preparation and lack of feedback loops. Integration with legacy systems ranks as top challenge for 60% of organizations, requiring security frameworks from day one, change management and AI literacy training, and cultural shifts from human-centric to AI-collaborative models. These practical barriers explain why institutional enthusiasm hasn't translated to corresponding financial returns, suggesting the ecosystem remains in experimental early stages despite rapid market capitalization growth.

Practical implications for finance, investment, and business

Autonomous capital transforms traditional finance through immediate productivity gains and strategic repositioning. Financial services see AI agents executing trades 126% faster with real-time portfolio optimization, fraud detection through real-time anomaly detection and proactive risk assessment, 68% of customer interactions expected AI-handled by 2028, credit assessment using continuous evaluation with real-time transaction data and behavioral trends, and compliance automation conducting dynamic risk assessments and regulatory reporting. Transformation metrics show 70% of financial services executives anticipating agentic AI for personalized experiences, revenue increases of 3-15% for AI implementers, 10-20% boost in sales ROI, 90% observing more efficient workflows, and 38% of employees reporting facilitated creativity.

Venture capital undergoes thesis evolution from pure infrastructure plays to application-specific infrastructure, focusing on demand, distribution, and revenue rather than pre-launch tokens. Major opportunities emerge in stablecoins post-regulatory clarity, energy x DePIN feeding AI infrastructure, and GPU marketplaces for compute resources. Due diligence requirements expand dramatically: assessing technical architecture (Level 1-5 autonomy), governance and ethics frameworks, security posture and audit trails, regulatory compliance roadmap, token economics and distribution analysis, and team ability navigating regulatory uncertainty. Risk factors include 95% of AI pilots failing (MIT report), poor data preparation and lack of feedback loops as leading causes, vendor dependence for firms without in-house expertise, and valuation multiples disconnected from fundamentals.

Business models multiply as autonomous capital enables innovation previously impossible. Autonomous investment vehicles pool capital through DAOs for algorithmic deployment with profit-sharing proportional to contributions (ai16z hedge fund model). AI-as-a-Service (AIaaS) sells tokenized agent capabilities as services with inference fees for chat interactions and fractional ownership of high-value agents. Data monetization creates decentralized data marketplaces with tokenization enabling secure sharing using privacy-preserving techniques like zero-knowledge proofs. Automated market making provides liquidity provision and optimization with dynamic interest rates based on supply/demand and cross-chain arbitrage. Compliance-as-a-Service offers automated AML/KYC checks, real-time regulatory reporting, and smart contract auditing.

Business model risks include regulatory classification uncertainty, consumer protection liability, platform dependencies, network effects favoring first movers, and token velocity problems. Yet successful implementations demonstrate viability: Gauntlet managing $1+ billion TVL through simulation-driven risk management, SingularityDAO delivering 25% ROI through AI-managed portfolios, and Virtuals Protocol launching 17,000+ agents with revenue-generating entertainment and analysis products.

Traditional industries undergo automation across sectors. Healthcare deploys AI agents for diagnostics (FDA approved 223 AI-enabled medical devices in 2023, up from 6 in 2015), patient treatment optimization, and administrative automation. Transportation sees Waymo conducting 150,000+ autonomous rides weekly and Baidu Apollo Go serving multiple Chinese cities with autonomous driving systems improving 67.3% YoY. Supply chain and logistics benefit from real-time route optimization, inventory management automation, and supplier coordination. Legal and professional services adopt document processing and contract analysis, regulatory compliance monitoring, and due diligence automation.

The workforce transformation creates displacement alongside opportunity. While 92 million jobs face displacement by 2030, projections show 170 million new jobs created requiring different skill sets. The challenge lies in transition—retraining programs, safety nets, and education reforms must accelerate to prevent mass unemployment and social disruption. Early evidence shows U.S. AI jobs in Q1 2025 reaching 35,445 positions (+25.2% YoY) with median $156,998 salaries and AI job listing mentions increasing 114.8% (2023) then 120.6% (2024). Yet this growth concentrates in technical roles, leaving questions about broader economic inclusion unanswered.

Risks require comprehensive mitigation strategies across five categories. Technical risks (smart contract vulnerabilities, oracle failures, cascading errors) demand continuous red team testing, formal verification, circuit breakers, insurance protocols like Nexus Mutual, and gradual rollout with limited autonomy initially. Regulatory risks (unclear legal status, retroactive enforcement, jurisdictional conflicts) require proactive regulator engagement, clear disclosure and whitepapers, robust KYC/AML frameworks, legal entity planning (Wyoming DAO LLC), and geographic diversification. Operational risks (data poisoning, model drift, integration failures) necessitate human-in-the-loop oversight for critical decisions, continuous monitoring and retraining, phased integration, fallback systems and redundancy, and comprehensive agent registries tracking ownership and exposure.

Market risks (bubble dynamics, liquidity crises, token concentration, valuation collapse) need focus on fundamental value creation versus speculation, diversified token distribution, lockup periods and vesting schedules, treasury management best practices, and transparent communication about limitations. Systemic risks (Big Tech concentration, network failures, financial contagion) demand multi-cloud strategies, decentralized infrastructure (edge AI, local models), stress testing and scenario planning, regulatory coordination across jurisdictions, and industry consortiums for standards development.

Adoption timelines suggest measured optimism for near-term, transformational potential for long-term. Near-term 2025-2027 sees Level 1-2 autonomy with rule-based automation and workflow optimization maintaining human oversight, 25% of companies using generative AI launching agentic pilots in 2025 (Deloitte) growing to 50% by 2027, autonomous AI agents market reaching 6.8billion(2024)expandingto6.8 billion (2024) expanding to 20+ billion (2027), and 15% of work decisions made autonomously by 2028 (Gartner). Adoption barriers include unclear use cases and ROI (60% cite this), legacy system integration challenges, risk and compliance concerns, and talent shortages.

Mid-term 2028-2030 brings Level 3-4 autonomy with agents operating in narrow domains without continuous oversight, multi-agent collaboration systems, real-time adaptive decision-making, and growing trust in agent recommendations. Market projections show generative AI contributing 2.64.4trillionannuallytoglobalGDP,autonomousagentsmarketreaching2.6-4.4 trillion annually to global GDP, autonomous agents market reaching 52.6 billion by 2030 (45% CAGR), 3 hours per day of activities automated (up from 1 hour in 2024), and 68% of customer-vendor interactions AI-handled. Infrastructure developments include agent-specific blockchains (ai16z), cross-chain interoperability standards, unified keystore protocols for permissions, and programmable wallet infrastructure mainstream.

Long-term 2030+ envisions Level 5 autonomy with fully autonomous agents and minimal human intervention, self-improving systems approaching AGI capabilities, agents hiring other agents and humans, and autonomous capital allocation at scale. Systemic transformation features AI agents as co-workers rather than tools, tokenized economy with agent-to-agent transactions, decentralized "Hollywood model" for project coordination, and 170 million new jobs requiring new skill sets. Key uncertainties remain: regulatory framework maturity, public trust and acceptance, technical breakthroughs or limitations in AI, economic disruption management, and ethical alignment and control problems.

Critical success factors for ecosystem development include regulatory clarity enabling innovation while protecting consumers, interoperability standards for cross-chain and cross-platform communication, security infrastructure as baseline with robust testing and audits, talent development through AI literacy programs and workforce transition support, and sustainable economics creating value beyond speculation. Individual projects require real utility solving genuine problems, strong governance with balanced stakeholder representation, technical excellence with security-first design, regulatory strategy with proactive compliance, and community alignment through transparent communication and shared value. Institutional adoption demands proof of ROI beyond efficiency gains, comprehensive risk management frameworks, change management with cultural transformation and training, vendor strategy balancing build versus buy while avoiding lock-in, and ethical guidelines for autonomous decision authority.

The autonomous capital ecosystem represents genuine technological and financial innovation with transformative potential, yet faces significant challenges around security, governance, regulation, and practical utility. The market experiences rapid growth driven by speculation and legitimate development in roughly equal measure, requiring sophisticated understanding, careful navigation, and realistic expectations from all participants as this emerging field matures toward mainstream adoption.

Conclusion: The trajectory of autonomous capital

The autonomous capital revolution is neither inevitable utopia nor dystopian certainty, but rather an emerging field where genuine technological innovation intersects with significant risks, requiring nuanced understanding of capabilities, limitations, and governance challenges. Five key thought leaders profiled here—Tarun Chitra, Amjad Masad, Jordi Alexander, Alexander Pack, and Irene Wu—demonstrate distinct but complementary approaches to building this future: Chitra's automated governance through simulation and risk management, Masad's agent-powered network economies and development infrastructure, Alexander's game theory-informed investment thesis emphasizing human judgment, Pack's infrastructure-focused venture capital strategy, and Wu's omnichain interoperability foundations.

Their collective work establishes that autonomous capital is technically feasible today—demonstrated by Gauntlet managing $1+ billion TVL, SingularityDAO's 25% ROI through AI portfolios, Virtuals Protocol's 17,000+ launched agents, and production trading systems delivering verified results. Yet the "trustless paradox" identified by researchers remains unresolved: deploying AI in trustless blockchain infrastructure avoids trusting fallible humans but creates potentially untrustworthy AI systems operating beyond intervention. This fundamental tension between autonomy and accountability will define whether autonomous capital becomes tool for human flourishing or ungovernable force.

The near-term outlook (2025-2027) suggests cautious experimentation with 25-50% of generative AI users launching agentic pilots, Level 1-2 autonomy maintaining human oversight, market growth from 6.8billionto6.8 billion to 20+ billion, but persistent adoption barriers around unclear ROI, legacy integration challenges, and regulatory uncertainty. The mid-term (2028-2030) could see Level 3-4 autonomy operating in narrow domains, multi-agent systems coordinating autonomously, and generative AI contributing $2.6-4.4 trillion to global GDP if technical and governance challenges resolve successfully. Long-term (2030+) visions of Level 5 autonomy with fully self-improving systems managing capital at scale remain speculative, contingent on breakthroughs in AI capabilities, regulatory frameworks, security infrastructure, and society's ability to manage workforce transitions.

Critical open questions determine outcomes: Will regulatory clarity enable or constrain innovation? Can security infrastructure mature fast enough to prevent catastrophic failures? Will decentralization goals materialize or will Big Tech concentration increase? Can sustainable business models emerge beyond speculation? How will society manage 92 million displaced jobs even as 170 million new positions emerge? These questions lack definitive answers today, making the autonomous capital ecosystem high-risk and high-opportunity simultaneously.

The five thought leaders' perspectives converge on key principles: human-AI symbiosis outperforms pure autonomy, with AI handling execution speed and data analysis while humans provide strategic judgment and values alignment; security and risk management require paranoid-level rigor as attackers hold fundamental economic advantages over defenders; interoperability and standardization will determine which platforms achieve network effects and long-term dominance; regulatory engagement must be proactive rather than reactive as legal frameworks evolve globally; and focus on fundamental value creation rather than speculation separates sustainable projects from bubble casualties.

For participants across the ecosystem, strategic recommendations differ by role. Investors should diversify exposure across platform, application, and infrastructure layers while focusing on revenue-generating models and regulatory posture, planning for extreme volatility, and sizing positions accordingly. Developers must choose architectural philosophies (Cathedral versus Bazaar), invest heavily in security audits and formal verification, build for cross-chain interoperability, engage regulators early, and solve actual problems rather than creating "glorified chatbots." Enterprises should start with low-risk pilots in customer service and analytics, invest in agent-ready infrastructure and data, establish clear governance for autonomous decision authority, train workforce in AI literacy, and balance innovation with control.

Policymakers face perhaps the most complex challenge: harmonizing regulation internationally while enabling innovation, using sandbox approaches and safe harbors for experimentation, protecting consumers through mandatory disclosures and fraud prevention, addressing systemic risks from Big Tech concentration and network dependencies, and preparing workforce through education programs and transition support for displaced workers. The EU's MiCA regulation provides a model balancing innovation with protection, though enforcement challenges and jurisdictional arbitrage concerns remain.

The most realistic assessment suggests autonomous capital will evolve gradually rather than revolutionary overnight, with narrow-domain successes (trading, customer service, analytics) preceding general-purpose autonomy, hybrid human-AI systems outperforming pure automation for the foreseeable future, and regulatory frameworks taking years to crystallize creating ongoing uncertainty. Market shake-outs and failures are inevitable given speculative dynamics, technological limitations, and security vulnerabilities, yet the underlying technological trends—AI capability improvements, blockchain maturation, and institutional adoption of both—point toward continued growth and sophistication.

Autonomous capital represents a legitimate technological paradigm shift with potential to democratize access to sophisticated financial tools, increase market efficiency through 24/7 autonomous optimization, enable new business models impossible in traditional finance, and create machine-to-machine economies operating at superhuman speeds. Yet it also risks concentrating power in hands of technical elites controlling critical infrastructure, creating systemic instabilities through interconnected autonomous systems, displacing human workers faster than retraining programs can adapt, and enabling financial crimes at machine scale through automated money laundering and fraud.

The outcome depends on choices made today by builders, investors, policymakers, and users. The five thought leaders profiled demonstrate that thoughtful, rigorous approaches prioritizing security, transparency, human oversight, and ethical governance can create genuine value while managing risks. Their work provides blueprints for responsible development: Chitra's scientific rigor through simulation, Masad's user-centric infrastructure, Alexander's game-theoretic risk assessment, Pack's infrastructure-first investing, and Wu's interoperability foundations.

As Jordi Alexander emphasized: "Judgment is the ability to integrate complex information and make optimal decisions—this is precisely where machines fall short." The future of autonomous capital will likely be defined not by full AI autonomy, but by sophisticated collaboration where AI handles execution, data processing, and optimization while humans provide judgment, strategy, ethics, and accountability. This human-AI partnership, enabled by crypto's trustless infrastructure and programmable money, represents the most promising path forward—balancing innovation with responsibility, efficiency with security, and autonomy with alignment to human values.

xStocks on Solana: A Developer’s Field Guide to Tokenized Equities

· 7 min read
Dora Noda
Software Engineer

xStocks are tokenized, 1:1 representations of U.S. stocks and ETFs, minted on Solana as SPL tokens. They are built to move and compose just like any other on-chain asset, collapsing the friction of traditional equity markets into a wallet primitive. For developers, this opens up a new frontier of financial applications.

Solana is the ideal platform for this innovation, primarily due to Token Extensions. These native protocol features—like metadata pointers, pausable configurations, permanent delegates, transfer hooks, and confidential balances—give issuers the compliance levers they need while keeping the tokens fully compatible with the DeFi ecosystem. This guide provides the patterns and reality checks you need to integrate xStocks into AMMs, lending protocols, structured products, and wallets, all while honoring the necessary legal and compliance constraints.


The Big Idea: Equities That Behave Like Tokens

For most of the world, owning U.S. equities involves intermediaries, restrictive market hours, and frustrating settlement lags. xStocks change that. Imagine buying a fraction of AAPLx at midnight, seeing it settle instantly in your wallet, and then using it as collateral in a DeFi protocol—all on Solana’s low-latency, low-fee network. Each xStock token tracks a real share held with a regulated custodian. Corporate actions like dividends and stock splits are handled on-chain through programmable mechanisms, not paper processes.

Solana’s contribution here is more than just cheap and fast transactions; it’s programmable compliance. The Token Extensions standard adds native features that were previously missing from traditional tokens:

  • Transfer hooks for KYC gating.
  • Confidential balances for privacy with auditability.
  • Permanent delegation for court-ordered actions.
  • Pausable configurations for emergency freezes.

These are enterprise-grade controls built directly into the token mint, not bolted on as ad-hoc application code.


How xStocks Work (And What It Means for Your App)

Issuance and Backing

The process is straightforward: an issuer acquires underlying shares of a stock (e.g., Tesla) and mints a corresponding number of tokens on Solana (1 TSLA share ↔ 1 TSLAx). Pricing and corporate action data are fed by dedicated oracles. In the current design, dividends are automatically reinvested, increasing token balances for holders.

xStocks are issued under a base prospectus regime as certificates (or trackers) and were approved in Liechtenstein by the FMA on May 8, 2025. It's crucial to understand this is not a U.S. security offering, and distribution is restricted based on jurisdiction.

What Holders Get (And Don’t)

These tokens provide holders with price exposure and seamless transferability. However, they do not confer shareholder rights, such as corporate voting, to retail buyers. When designing your app's user experience and risk disclosures, this distinction must be crystal clear.

Where They Trade

While xStocks launched with centralized partners, they quickly propagated across Solana's DeFi ecosystem, appearing in AMMs, aggregators, lending protocols, and wallets. Eligible users can self-custody their tokens and move them on-chain 24/7, while centralized venues typically offer 24/5 order book access.


Why Solana Is Unusually Practical for Tokenized Equities

Solana’s Real-World Asset (RWA) tooling, particularly Token Extensions, allows teams to combine DeFi’s composability with institutional compliance without creating isolated, walled gardens.

Token Extensions = Compliance-Aware Mints

  • Metadata Pointer: Keeps wallets and explorers synced with up-to-date issuer metadata.
  • Scaled UI Amount Config: Lets issuers execute splits or dividends via a simple multiplier that automatically updates balances displayed in user wallets.
  • Pausable Config: Provides a "kill switch" for freezing token transfers during incidents or regulatory events.
  • Permanent Delegate: Enables an authorized party to transfer or burn tokens to comply with legal orders.
  • Transfer Hook: Can be used to enforce allow/deny lists at the time of transfer, ensuring only eligible wallets can interact with the token.
  • Confidential Balances: Paves the way for privacy-preserving transactions that remain auditable.

Your integrations must read these extensions at runtime and adapt their behavior accordingly. For instance, if a token is paused, your application should halt related operations.


Patterns for Builders: Integrating xStocks the Right Way

AMMs and Aggregators

  • Respect Pause States: If a token's mint is paused, immediately halt swaps and LP operations and clearly notify users.
  • Use Oracle-Guarded Curves: Implement pricing curves guarded by robust oracles to handle volatility, especially during hours when the underlying stock exchange is closed. Manage slippage gracefully during these off-hours.
  • Expose Venue Provenance: Clearly indicate to users where liquidity is coming from, whether it's a DEX, CEX, or wallet swap.

Lending and Borrowing Protocols

  • Track Corporate Actions: Use issuer or venue NAV oracles and monitor for Scaled UI Amount updates to avoid silent collateral value drift after a stock split or dividend.
  • Define Smart Haircuts: Set appropriate collateral haircuts that account for off-hours market exposure and the varying liquidity of different stock tickers. These risk parameters are different from those for stablecoins.

Wallets and Portfolio Apps

  • Render Official Metadata: Pull and display official token information from the mint’s metadata pointer. Explicitly state "no shareholder rights" and show jurisdiction flags in the token's detail view.
  • Surface Safety Rails: Detect the token's extension set upfront and surface relevant information to the user, such as whether the token is pausable, has a permanent delegate, or uses a transfer hook.

Structured Products

  • Create Novel Instruments: Combine xStocks with derivatives like perpetuals or options to build hedged baskets or structured yield notes.
  • Be Clear in Your Docs: Ensure your documentation clearly describes the legal nature of the underlying asset (a certificate/tracker) and how corporate actions like dividends are treated.

Compliance, Risk, and Reality Checks

Jurisdiction Gating

The availability of xStocks is geo-restricted. They are not offered to U.S. persons and are unavailable in several other major jurisdictions. Your application must not direct ineligible users into flows they cannot legally complete.

Investor Understanding

European regulators have warned that some tokenized stocks can be misunderstood by investors, especially when tokens mirror a stock's price without granting actual equity rights. Your UX must be crystal clear about what the token represents.

Model Differences

Not all "tokenized stocks" are created equal. Some are derivatives, others are debt certificates backed by shares in a special purpose vehicle (SPV), and a few are moving toward legally equivalent digital shares. Design your features and disclosures to match the specific model you are integrating.


Multichain Context and Solana's Central Role

While xStocks originated on Solana, they have expanded to other chains to meet user demand. For developers, this introduces challenges around cross-chain UX and ensuring consistent compliance semantics across different token standards (like SPL vs. ERC-20). Even so, Solana’s sub-second finality and native Token Extensions keep it a premier venue for on-chain equities.


Developer Checklist

  • Token Introspection: Read the mint’s full extension set (metadata pointer, pausable, permanent delegate, etc.) and subscribe to pause events to fail safely.
  • Price and Actions: Source prices from robust oracles and watch for scaled-amount updates to correctly handle dividends and splits.
  • UX Clarity: Display eligibility requirements and rights limitations (e.g., no voting) prominently. Link to official issuer documentation within your app.
  • Risk Limits: Apply appropriate LTV haircuts, implement off-hours liquidity safeguards, and build circuit-breakers tied to the mint’s pausable state.
  • Compliance Alignment: If and when transfer hooks are enabled, ensure your protocol enforces allow/deny lists at the transfer level. Until then, gate user flows at the application layer.

Why This Matters Now

The early traction for xStocks shows genuine demand, with broad exchange listings, immediate DeFi integrations, and measurable on-chain volumes. While this is still a tiny slice of the $120 trillion global equity market, the signal for builders is clear: the primitives are here, the rails are ready, and the greenfield is wide open.

How EigenLayer + Liquid Restaking Are Re‑pricing DeFi Yields in 2025

· 9 min read
Dora Noda
Software Engineer

For months, "restaking" was the hottest narrative in crypto, a story fueled by points, airdrops, and the promise of compounded yield. But narratives don't pay the bills. In 2025, the story has been replaced by something far more tangible: a functioning economic system with real cash flows, real risks, and a completely new way to price yield on-chain.

With key infrastructure like slashing now live and fee-generating services hitting their stride, the restaking ecosystem has finally matured. The hype cycle of 2024 has given way to the underwriting cycle of 2025. This is the moment where we move from chasing points to pricing risk.

Here’s the TL;DR on the state of play:

  • Restaking moved from narrative to cash flow. With slashing live on mainnet as of April 17, 2025, and the Rewards v2 governance framework in place, EigenLayer’s yield mechanics now include enforceable downside, clearer operator incentives, and increasingly fee-driven rewards.
  • Data availability got cheaper and faster. EigenDA, a major Actively Validated Service (AVS), slashed its prices by approximately 10x in 2024 and is on a path toward massive throughput. This is a big deal for the rollups that will actually pay AVSs and the operators securing them.
  • Liquid Restaking Tokens (LRTs) make the stack accessible, but add new risks. Protocols like Ether.fi (weETH), Renzo (ezETH), and Kelp DAO (rsETH) offer liquidity and convenience, but they also introduce new vectors for smart contract failures, operator selection risk, and market peg instability. We’ve already seen real depeg events, a stark reminder of these layered risks.

1) The 2025 Yield Stack: From Base Staking to AVS Fees

At its core, the concept is simple. Ethereum staking gives you a base yield for securing the network. Restaking, pioneered by EigenLayer, allows you to take that same staked capital (ETH or Liquid Staking Tokens) and extend its security to other third-party services, known as Actively Validated Services (AVSs). These can be anything from data availability layers and oracles to cross-chain bridges and specialized coprocessors. In return for this "borrowed" security, AVSs pay fees to the node operators and, ultimately, to the restakers who underwrite their operations. EigenLayer calls this a “marketplace for trust.”

In 2025, this marketplace matured significantly:

  • Slashing is in production. AVSs can now define and enforce conditions to penalize misbehaving node operators. This turns the abstract promise of security into a concrete economic guarantee. With slashing, "points" are replaced by enforceable risk/reward calculations.
  • Rewards v2 formalizes how rewards and fee distributions flow through the system. This governance-approved change brings much-needed clarity, aligning incentives between AVSs that need security, operators that provide it, and restakers who fund it.
  • Redistribution has started rolling out. This mechanism determines how slashed funds are handled, clarifying how losses and clawbacks are socialized across the system.

Why it matters: Once AVSs begin to generate real revenue and the penalties for misbehavior are credible, restaked yield becomes a legitimate economic product, not just a marketing story. The activation of slashing in April was the inflection point, completing the original vision for a system already securing billions in assets across dozens of live AVSs.


2) DA as a Revenue Engine: EigenDA’s Price/Performance Curve

If rollups are the primary customers for cryptoeconomic security, then data availability (DA) is where the near-term revenue lives. EigenDA, EigenLayer's flagship AVS, is the perfect case study.

  • Pricing: In August 2024, EigenDA announced a dramatic price cut of roughly 10x and introduced a free tier. This move makes it economically viable for more applications and rollups to post their data, directly increasing the potential fee flow to the operators and restakers securing the service.
  • Throughput: The project is on a clear trajectory for massive scale. While its mainnet currently supports around 10 MB/s, the public roadmap targets over 100 MB/s as the operator set expands. This signals that both capacity and economics are trending in the right direction for sustainable fee generation.

Takeaway: The combination of cheaper DA services and credible slashing creates a clear runway for AVSs to generate sustainable revenue from fees rather than relying on inflationary token emissions.


3) AVS, Evolving: From “Actively Validated” to “Autonomous Verifiable”

You may notice a subtle but important shift in terminology. AVSs are increasingly described not just as “Actively Validated Services” but as “Autonomous Verifiable Services.” This change in language emphasizes systems that can prove their correct behavior cryptographically and enforce consequences automatically, rather than simply being monitored. This framing pairs perfectly with the new reality of live slashing and programmatic operator selection, pointing to a future of more robust and trust-minimized infrastructure.


4) How You Participate

For the average DeFi user or institution, there are three common ways to engage with the restaking ecosystem, each with distinct trade-offs.

  • Native restaking

    • How it works: You restake your native ETH (or other approved assets) directly on EigenLayer and delegate to an operator of your choice.
    • Pros: You have maximum control over your operator selection and which AVSs you are securing.
    • Cons: This approach comes with operational overhead and requires you to do your own due diligence on operators. You shoulder all the selection risk yourself.
  • LST → EigenLayer (Liquid restaking without a new token)

    • How it works: You take your existing Liquid Staking Tokens (LSTs) like stETH, rETH, or cbETH and deposit them into EigenLayer strategies.
    • Pros: You can reuse your existing LSTs, keeping your exposure relatively simple and building on a familiar asset.
    • Cons: You are stacking protocol risks. A failure in the underlying LST, EigenLayer, or the AVSs you secure could result in losses.
  • LRTs (Liquid Restaking Tokens)

    • How it works: Protocols issue tokens like weETH (wrapping eETH), ezETH, and rsETH that bundle the entire restaking process—delegation, operator management, and AVS selection—into a single, liquid token you can use across DeFi.
    • Pros: The primary benefits are convenience and liquidity.
    • Cons: This convenience comes with added layers of risk, including the LRT's own smart contracts and the peg risk of the token on secondary markets. The depeg of ezETH in April 2024, which triggered a cascade of liquidations, serves as a real-world reminder that LRTs are leveraged exposures to multiple interconnected systems.

5) Risk, Repriced

Restaking’s promise is higher yield for performing real work. Its risks are now equally real.

  • Slashing & policy risk: Slashing is live, and AVSs can define custom, and sometimes complex, conditions for penalties. It is critical to understand the quality of the operator set you are exposed to and how disputes or appeals are handled.
  • Peg & liquidity risk in LRTs: Secondary markets can be volatile. As we've already seen, sharp dislocations between an LRT and its underlying assets can and do happen. You must build in buffers for liquidity crunches and conservative collateral factors when using LRTs in other DeFi protocols.
  • Smart-contract & strategy risk: You are stacking multiple smart contracts on top of each other (LST/LRT + EigenLayer + AVSs). The quality of audits and the power of governance over protocol upgrades are paramount.
  • Throughput/economics risk: AVS fees are not guaranteed; they depend entirely on usage. While DA price cuts are a positive catalyst, sustained demand from rollups and other applications is the ultimate engine of restaking yield.

6) A Simple Framework to Value Restaked Yield

With these dynamics in play, you can now think about the expected return on restaking as a simple stack:

Expected Return=(Base Staking Yield)+(AVS Fees)(Expected Slashing Loss)(Frictions)\text{Expected Return} = (\text{Base Staking Yield}) + (\text{AVS Fees}) - (\text{Expected Slashing Loss}) - (\text{Frictions})

Let's break that down:

  • Base staking yield: The standard return from securing Ethereum.
  • AVS fees: The additional yield paid by AVSs, weighted by your specific operator and AVS allocation.
  • Expected slashing loss: This is the crucial new variable. You can estimate it as: probability of a slashable event × penalty size × your exposure.
  • Frictions: These include protocol fees, operator fees, and any liquidity haircuts or peg discounts if you are using an LRT.

You will never have perfect inputs for this formula, but forcing yourself to estimate the slashing term, even conservatively, will keep your portfolio honest. The introduction of Rewards v2 and Redistribution makes this calculation far less abstract than it was a year ago.


7) Playbooks for 2025 Allocators

  • Conservative

    • Prefer native restaking or direct LST restaking strategies.
    • Delegate only to diversified, high-uptime operators with transparent, well-documented AVS security policies.
    • Focus on AVSs with clear, understandable fee models, such as those providing data availability or core infrastructure services.
  • Balanced

    • Use a mix of direct LST restaking and select LRTs that have deep liquidity and transparent disclosures about their operator sets.
    • Cap your exposure to any single LRT protocol and actively monitor peg spreads and on-chain liquidity conditions.
  • Aggressive

    • Utilize LRT-heavy baskets to maximize liquidity and target smaller, potentially higher-growth AVSs or newer operator sets for higher upside.
    • Explicitly budget for potential slashing or depeg events. Avoid using leverage on top of LRTs unless you have thoroughly modeled the impact of a significant depeg.

8) What to Watch Next

  • AVS revenue turn-on: Which services are actually generating meaningful fee revenue? Keep an eye on DA-adjacent and core infrastructure AVSs, as they are likely to lead the pack.
  • Operator stratification: Over the next two to three quarters, slashing and the Rewards v2 framework should begin to separate best-in-class operators from the rest. Performance and reliability will become key differentiators.
  • The "Autonomous Verifiable" trend: Watch for AVS designs that lean more heavily on cryptographic proofs and automated enforcement. These are likely to be the most robust and fee-worthy services in the long run.

9) A Note on Numbers (and Why They’ll Change)

You will encounter different throughput and TVL figures across various sources and dates. For instance, EigenDA's own site may reference both its current mainnet support of around 10 MB/s and its future roadmap targeting 100+ MB/s. This reflects the dynamic nature of a system that is constantly evolving as operator sets grow and software improves. Always check the dates and context of any data before anchoring your financial models to it.


Bottom Line

2024 was the hype cycle. 2025 is the underwriting cycle. With slashing live and AVS fee models becoming more compelling, restaking yields are finally becoming priceable—and therefore, truly investable. For sophisticated DeFi users and institutional treasuries willing to do the homework on operators, AVSs, and LRT liquidity, restaking has evolved from a promising narrative into a core component of the on-chain economy.


This article is for informational purposes only and is not financial advice.

Hyperliquid in 2025: A High-Performance DEX Building the Future of Onchain Finance

· 43 min read
Dora Noda
Software Engineer

Decentralized exchanges (DEXs) have matured into core pillars of crypto trading, now capturing roughly 20% of total market volumes. Within this space, Hyperliquid has emerged as the undisputed leader in on-chain derivatives. Launched in 2022 with the ambitious goal of matching centralized exchange (CEX) performance on-chain, Hyperliquid today processes billions in daily trading and controls about 70–75% of the DEX perpetual futures market. It achieves this by combining CEX-grade speed and deep liquidity with DeFi’s transparency and self-custody. The result is a vertically integrated Layer-1 blockchain and exchange that many now call “the blockchain to house all finance.” This report delves into Hyperliquid’s technical architecture, tokenomics, 2025 growth metrics, comparisons with other DEX leaders, ecosystem developments, and its vision for the future of on-chain finance.

Technical Architecture: A Vertically Integrated, High-Performance Chain

Hyperliquid is not just a DEX application – it is an entire Layer-1 blockchain built for trading performance. Its architecture consists of three tightly coupled components operating in a unified state:

  • HyperBFT (Consensus): A custom Byzantine Fault Tolerant consensus mechanism optimized for speed and throughput. Inspired by modern protocols like HotStuff, HyperBFT provides sub-second finality and high consistency to ensure all nodes agree on the order of transactions. This Proof-of-Stake consensus is designed to handle the intense load of a trading platform, supporting on the order of 100,000–200,000 operations per second in practice. By early 2025, Hyperliquid had around 27 independent validators securing the network, a number that is steadily growing to decentralize consensus.
  • HyperCore (Execution Engine): A specialized on-chain engine for financial applications. Rather than using generic smart contracts for critical exchange logic, HyperCore implements built-in central limit order books (CLOBs) for perpetual futures and spot markets, as well as other modules for lending, auctions, oracles, and more. Every order placement, cancellation, trade match, and liquidation is processed on-chain with one-block finality, yielding execution speeds comparable to traditional exchanges. By eschewing AMMs and handling order matching within the protocol, Hyperliquid achieves deep liquidity and low latency – it has demonstrated <1s trade finality and throughput that rivals centralized venues. This custom execution layer (written in Rust) can reportedly handle up to 200k orders per second after recent optimizations, eliminating the bottlenecks that previously made on-chain order books infeasible.
  • HyperEVM (Smart Contracts): A general-purpose Ethereum-compatible execution layer introduced in Feb 2025. HyperEVM allows developers to deploy Solidity smart contracts and dApps on Hyperliquid with full EVM compatibility, similar to building on Ethereum. Crucially, HyperEVM is not a separate shard or rollup – it shares the same unified state with HyperCore. This means that dApps on HyperEVM can natively interoperate with the exchange’s order books and liquidity. For example, a lending protocol on HyperEVM can read live prices from HyperCore’s order book or even post liquidation orders directly into the order book via system calls. This composability between smart contracts and the high-speed exchange layer is a unique design: no bridges or off-chain oracles are needed for dApps to leverage Hyperliquid’s trading infrastructure.

Figure: Hyperliquid's vertically integrated architecture showing the unified state between consensus (HyperBFT), exchange engine (HyperCore), smart contracts (HyperEVM), and asset bridging (HyperUnit).

Integration with On-Chain Infrastructure: By building its own chain, Hyperliquid tightly integrates normally siloed functions into one platform. HyperUnit, for instance, is Hyperliquid’s decentralized bridging and asset tokenization module enabling direct deposits of external assets like BTC, ETH, and SOL without custodial wrappers. Users can lock native BTC or ETH and receive equivalent tokens (e.g. uBTC, uETH) on Hyperliquid for use as trading collateral, without relying on centralized custodians. This design provides “true collateral mobility” and a more regulatory-aware framework for bringing real-world assets on-chain. Thanks to HyperUnit (and Circle’s USDC integration discussed later), traders on Hyperliquid can seamlessly move liquidity from other networks into Hyperliquid’s fast exchange environment.

Performance and Latency: All parts of the stack are optimized for minimal latency and maximal throughput. HyperBFT finalizes blocks within a second, and HyperCore processes trades in real time, so users experience near-instant order execution. There are effectively no gas fees for trading actions – HyperCore transactions are feeless, enabling high-frequency order placement and cancellation without cost to users. (Normal EVM contract calls on HyperEVM do incur a low gas fee, but the exchange’s operations run gas-free on the native engine.) This zero-gas, low-latency design makes advanced trading features viable on-chain. Indeed, Hyperliquid supports the same advanced order types and risk controls as top CEXs, such as limit and stop orders, cross-margining, and up to 50× leverage on major markets. In sum, Hyperliquid’s custom L1 chain eliminates the traditional trade-off between speed and decentralization. Every operation is on-chain and transparent, yet the user experience – in terms of execution speed and interface – parallels that of a professional centralized exchange.

Evolution and Scalability: Hyperliquid’s architecture was born from first principles engineering. The project launched quietly in 2022 as a closed-alpha perpetuals DEX on a custom Tendermint-based chain, proving the CLOB concept with ~20 assets and 50× leverage. By 2023 it transitioned into a fully sovereign L1 with the new HyperBFT consensus, achieving 100K+ orders per second and introducing zero-gas trading and community liquidity pools. The addition of HyperEVM in early 2025 opened the floodgates for developers, marking Hyperliquid’s evolution from a single-purpose exchange into a full DeFi platform**. Notably, all these enhancements have kept the system stable – Hyperliquid reports** 99.99% uptime historically[25]_. This track record and vertical integration_ give Hyperliquid a significant technical moat: it controls the entire stack (consensus, execution, application), allowing continuous optimization. As demand grows, the team continues to refine the node software for even higher throughput, ensuring scalability for the next wave of users and more complex on-chain markets.

Tokenomics of $HYPE: Governance, Staking, and Value Accrual

Hyperliquid’s economic design centers on its native token $HYPE, introduced in late 2024 to decentralize ownership and governance of the platform. The token’s launch and distribution were notably community-centric: in November 2024, Hyperliquid conducted an airdrop Token Generation Event (TGE), allocating 31% of the 1 billion fixed supply to early users as a reward for their participation. An even larger portion (≈38.8%) was set aside for future community incentives like liquidity mining or ecosystem development. Importantly, $HYPE had zero allocations to VCs or private investors, reflecting a philosophy of prioritizing community ownership. This transparent distribution aimed to avoid the heavy insider ownership seen in many projects and instead empower the actual traders and builders on Hyperliquid.

The $HYPE token serves multiple roles in the Hyperliquid ecosystem:

  • Governance: $HYPE is a governance token enabling holders to vote on Hyperliquid Improvement Proposals (HIPs) and shape the protocol’s evolution. Already, critical upgrades like HIP-1, HIP-2, and HIP-3 have been passed, which established permissionless listing standards for spot tokens and perpetual markets. For example, HIP-3 opened up the ability for community members to permissionlessly deploy new perp markets, much like Uniswap did for spot trading, unlocking long-tail assets (including traditional market perps) on Hyperliquid. Governance will increasingly decide listings, parameter tweaks, and the use of community incentive funds.
  • Staking & Network Security: Hyperliquid is a Proof-of-Stake chain, so staking $HYPE to validators secures the HyperBFT network. Stakers delegate to validators and earn a portion of block rewards and fees. Shortly after launch, Hyperliquid enabled staking with an annual yield ~2–2.5% to incentivize participation in consensus. As more users stake, the chain’s security and decentralization improve. Staked $HYPE (or derivative forms like upcoming beHYPE liquid staking) may also be used in governance voting, aligning security participants with decision-making.
  • Exchange Utility (Fee Discounts): Holding or staking $HYPE confers trading fee discounts on Hyperliquid’s exchange. Similar to how Binance’s BNB or dYdX’s DYDX token offer reduced fees, active traders are incentivized to hold $HYPE to minimize their costs. This creates a natural demand for the token among the exchange’s user base, especially high-volume traders.
  • Value Accrual via Buybacks: The most striking aspect of Hyperliquid's tokenomics is its aggressive fee-to-value mechanism. Hyperliquid uses the vast majority of its trading fee revenue to buy back and burn $HYPE on the open market, directly returning value to token holders. In fact, 97% of all protocol trading fees are allocated to buying back $HYPE (and the remainder to an insurance fund and liquidity providers). This is one of the highest fee return rates in the industry. By mid-2025, Hyperliquid was generating over $65 million in protocol revenue per month from trading fees – and virtually all of that went toward $HYPE repurchases, creating constant buy pressure. This deflationary token model, combined with a fixed 1B supply, means $HYPE's tokenomics are geared for long-term value accrual for loyal stakeholders. It also signals that Hyperliquid's team forgoes short-term profit (no fee revenue is taken as profit or distributed to insiders; even the core team presumably only benefits as token holders), instead funneling revenue to the community treasury and token value.
  • Liquidity Provider Rewards: A small portion of fees (≈3–8%) is used to reward liquidity providers in Hyperliquid’s unique HyperLiquidity Pool (HLP). HLP is an on-chain USDC liquidity pool that facilitates market-making and auto-settlement for the order books, analogous to an “LP vault.” Users who provide USDC to HLP earn a share of trading fees in return. By early 2025, HLP was offering depositors an ~11% annualized yield from accrued trading fees. This mechanism lets community members share in the exchange’s success by contributing capital to backstop liquidity (similar in spirit to GMX’s GLP pool, but for an orderbook system). Notably, Hyperliquid’s insurance Assistance Fund (denominated in $HYPE) also uses a portion of revenue to cover any HLP losses or unusual events – for instance, a “Jelly” exploit in Q1 2025 incurred a $12M shortfall in HLP, which was fully reimbursed to pool users. The fee buyback model was so robust that despite that hit, $HYPE buybacks continued unabated and HLP remained profitable, demonstrating strong alignment between the protocol and its community liquidity providers.

In summary, Hyperliquid’s tokenomics emphasize community ownership, security, and long-term sustainability. The absence of VC allocations and the high buyback rate were decisions that signaled confidence in organic growth. The early results have been positive – since its TGE, $HYPE’s price climbed 4× (as of mid-2025) on the back of real adoption and revenue. More importantly, users remained engaged after the airdrop; trading activity actually accelerated post-token launch, rather than suffering the typical post-incentive drop-off. This suggests the token model is successfully aligning user incentives with the platform’s growth, creating a virtuous cycle for Hyperliquid’s ecosystem.

Trading Volume, Adoption, and Liquidity in 2025

Hyperliquid by the Numbers: In 2025, Hyperliquid stands out not just for its technology but for the sheer scale of its on-chain activity. It has rapidly become the largest decentralized derivatives exchange by a wide margin, setting new benchmarks for DeFi. Key metrics illustrating Hyperliquid’s traction include:

  • Market Dominance: Hyperliquid handles roughly 70–77% of all DEX perpetual futures volume in 2025 – an 8× larger share than the next competitor. In other words, Hyperliquid by itself accounts for well over three-quarters of decentralized perp trading worldwide, making it the clear leader in its category. (For context, as of Q1 2025 this equated to about 56–73% of decentralized perp volume, up from ~4.5% at the start of 2024 – a stunning rise in one year.)
  • Trading Volumes: Cumulative trading volume on Hyperliquid blew past $1.5 trillion in mid-2025, highlighting how much liquidity has flowed through its markets. By late 2024 the exchange was already seeing daily volumes around $10–14 billion, and volume continued to climb with new user influxes in 2025. In fact, during peak market activity (e.g. a memecoin frenzy in May 2025), Hyperliquid’s weekly trading volume reached as high as $780 billion in one week – averaging well over $100B per day – rivaling or exceeding many mid-sized centralized exchanges. Even in steady conditions, Hyperliquid was averaging roughly $470B in weekly volume in the first half of 2025. This scale is unprecedented for a DeFi platform; by mid-2025 Hyperliquid was executing about 6% of *all* crypto trading volume globally (including CEXs), narrowing the gap between DeFi and CeFi.
  • Open Interest and Liquidity: The depth of Hyperliquid’s markets is also evident in its open interest (OI) – the total value of active positions. OI grew from ~3.3B at 2024’s end to around **\15** billion by mid-2025. For perspective, this OI is about 60–120% of the levels on major CEXs like Bybit, OKX, or Bitget, indicating that professional traders are as comfortable deploying large positions on Hyperliquid as on established centralized venues. Order book depth on Hyperliquid for major pairs like BTC or ETH is reported to be comparable to top CEXs, with tight bid-ask spreads. During certain token launches (e.g. the popular PUMP meme coin), Hyperliquid even achieved the deepest liquidity and highest volume of any venue, beating out CEXs for that asset. This showcases how an on-chain order book, when well-designed, can match CEX liquidity – a milestone in DEX evolution.
  • Users and Adoption: The platform’s user base has expanded dramatically through 2024–2025. Hyperliquid surpassed 500,000 unique user addresses in mid-2025. In the first half of 2025 alone, the count of active addresses nearly doubled (from ~291k to 518k). This 78% growth in six months was fueled by word-of-mouth, a successful referral & points program, and the buzz around the $HYPE airdrop (which interestingly retained users rather than just attracting mercenaries – there was no drop-off in usage after the airdrop, and activity kept climbing). Such growth indicates not just one-time curiosity but genuine adoption by traders. A significant portion of these users are believed to be “whales” and professional traders who migrated from CEXs, drawn by Hyperliquid’s liquidity and lower fees. Indeed, institutions and high-volume trading firms have begun treating Hyperliquid as a primary venue for perpetuals trading, validating DeFi’s appeal when performance issues are solved.
  • Revenue and Fees: Hyperliquid’s robust volumes translate into substantial protocol revenue (which, as noted, largely accrues to $HYPE buybacks). In the last 30 days (as of mid-2025), Hyperliquid generated about $65.45 million in protocol fees. On a daily basis that’s roughly $2.0–2.5 million in fees earned from trading activity. Annualized, the platform is on track for $800M+ in revenue – an astonishing figure that approaches revenues of some major centralized exchanges, and far above typical DeFi protocols. It underscores how Hyperliquid’s high volume and fee structure (small per-trade fees that add up at scale) produce a thriving revenue model to support its token economy.
  • Total Value Locked (TVL) and Assets: Hyperliquid’s ecosystem TVL – representing assets bridged into its chain and liquidity in its DeFi protocols – has climbed rapidly alongside trading activity. At the start of Q4 2024 (pre-token) Hyperliquid’s chain TVL was around $0.5B, but after the token launch and HyperEVM expansion, TVL soared to $2+ billion by early 2025. By mid-2025, it reached approximately $3.5 billion (June 30, 2025) and continued upward. The introduction of native USDC (via Circle) and other assets boosted on-chain capital to an estimated $5.5 billion AUM by July 2025. This includes assets in the HLP pool, DeFi lending pools, AMMs, and users’ collateral balances. Hyperliquid’s HyperLiquidity Pool (HLP) itself held a TVL around $370–500 million** in H1 2025, providing a deep USDC liquidity reserve for the exchange. Additionally, the **HyperEVM DeFi TVL** (excluding the core exchange) surpassed **\1 billion within a few months of launch, reflecting rapid growth of new dApps on the chain. These figures firmly place Hyperliquid among the largest blockchain ecosystems by TVL, despite being a specialized chain.

In summary, 2025 has seen Hyperliquid scale to CEX-like volumes and liquidity. It consistently ranks as the top DEX by volume, and even measures as a significant fraction of overall crypto trading. The ability to sustain half a trillion dollars in weekly volume on-chain, with half a million users, illustrates that the long-held promise of high-performance DeFi is being realized. Hyperliquid’s success is expanding the boundaries of what on-chain markets can do: for instance, it became the go-to venue for fast listing of new coins (it often is first to list perps for trending assets, attracting huge activity) and has proven that on-chain order books can handle blue-chip trading at scale (its BTC and ETH markets have liquidity comparable to leading CEXs). These achievements underpin Hyperliquid’s claim as a potential foundation for all on-chain finance going forward.

Comparison with Other Leading DEXs (dYdX, GMX, UniswapX, etc.)

The rise of Hyperliquid invites comparisons to other prominent decentralized exchanges. Each of the major DEX models – from order-book-based derivatives like dYdX, to liquidity pool-based perps like GMX, to spot DEX aggregators like UniswapX – takes a different approach to balancing performance, decentralization, and user experience. Below, we analyze how Hyperliquid stacks up against these platforms:

  • Hyperliquid vs. dYdX: dYdX was the early leader in decentralized perps, but its initial design (v3) relied on a hybrid approach: an off-chain order book and matching engine, combined with an L2 settlement on StarkWare. This gave dYdX decent performance but came at the cost of decentralization and composability – the order book was run by a central server, and the system was not open to general smart contracts. In late 2023, dYdX launched v4 as a Cosmos app-chain, aiming to fully decentralize the order book within a dedicated PoS chain. This is philosophically similar to Hyperliquid’s approach (both built custom chains for on-chain order matching). Hyperliquid’s key edge has been its unified architecture and head start in performance tuning. By designing HyperCore and HyperEVM together, Hyperliquid achieved CEX-level speed entirely on-chain before dYdX’s Cosmos chain gained traction. In fact, Hyperliquid’s performance surpassed dYdX – it can handle far more throughput (hundreds of thousands of tx/sec) and offers cross-contract composability that dYdX (an app-specific chain without an EVM environment) currently lacks. Artemis Research notes: earlier protocols either compromised on performance (like GMX) or on decentralization (like dYdX), but Hyperliquid delivered both, solving the deeper challenge. This is reflected in market share: by 2025 Hyperliquid commands ~75% of the perp DEX market, whereas dYdX’s share has dwindled to single digits. In practical terms, traders find Hyperliquid’s UI and speed comparable to dYdX (both offer pro exchange interfaces, advanced orders, etc.), but Hyperliquid offers greater asset variety and on-chain integration. Another difference is fee and token models: dYdX’s token is mainly a governance token with indirect fee discounts, while Hyperliquid’s $HYPE directly accrues exchange value (via buybacks) and offers staking rights. Lastly, on decentralization, both are PoS chains – dYdX had ~20 validators at launch vs Hyperliquid’s ~27 by early 2025 – but Hyperliquid’s open builder ecosystem (HyperEVM) arguably makes it more decentralized in terms of development and usage. Overall, Hyperliquid can be seen as the spiritual successor to dYdX: it took the order book DEX concept and fully on-chain-ified it with greater performance, which is evidenced by Hyperliquid pulling significant volume even from centralized exchanges (something dYdX v3 struggled to do).
  • Hyperliquid vs. GMX: GMX represents the AMM/pool-based model for perpetuals. It became popular on Arbitrum in 2022 by allowing users to trade perps against a pooled liquidity (GLP) with oracle-based pricing. GMX’s approach prioritized simplicity and zero price impact for small trades, but it sacrifices some performance and capital efficiency. Because GMX relies on price oracles and a single liquidity pool, large or frequent trades can be challenging – the pool can incur losses if traders win (GLP holders take the opposite side of trades), and oracle price latency can be exploited. Hyperliquid’s order book model avoids these issues by matching traders peer-to-peer at market-driven prices, with professional market makers providing deep liquidity. This yields far tighter spreads and better execution for big trades compared to GMX’s model. In essence, GMX’s design compromises on high-frequency performance (trades only update when oracles push prices, and there’s no rapid order placement/cancellation) whereas Hyperliquid’s design excels at it. The numbers reflect this: GMX’s volumes and OI are an order of magnitude smaller, and its market share has been dwarfed by Hyperliquid’s rise. For example, GMX typically supported under 20 markets (mostly large caps), whereas Hyperliquid offers 100+ markets including many long-tail assets – the latter is possible because maintaining many order books is feasible on Hyperliquid’s chain, whereas in GMX adding new asset pools is slower and riskier. From a user experience standpoint, GMX offers a simple swap-style interface (good for DeFi novices), while Hyperliquid provides a full exchange dashboard with charts and order books catering to advanced traders. Fees: GMX charges a ~0.1% fee on trades (which goes to GLP and GMX stakers) and has no token buyback; Hyperliquid charges very low maker/taker fees (on the order of 0.01–0.02%) and uses fees to buy back $HYPE for holders. Decentralization: GMX runs on Ethereum L2s (Arbitrum, Avalanche), inheriting strong base security, but its dependency on a centralized price oracle (Chainlink) and single liquidity pool introduces different centralized risks. Hyperliquid runs its own chain, which is newer/less battle-tested than Ethereum, but its mechanisms (order book + many makers) avoid centralized oracle dependence. In summary, Hyperliquid offers superior performance and institutional-grade liquidity relative to GMX, at the cost of more complex infrastructure. GMX proved there is demand for on-chain perps, but Hyperliquid’s order books have proven far more scalable for high-volume trading.
  • Hyperliquid vs. UniswapX (and Spot DEXs): UniswapX is a recently introduced trade aggregator for spot swaps (built by Uniswap Labs) that finds the best price across AMMs and other liquidity sources. While not a direct competitor on perpetuals, UniswapX represents the cutting-edge of spot DEX user experience. It enables gas-free, aggregation-optimized token swaps by letting off-chain “fillers” execute trades for users. By contrast, Hyperliquid’s spot trading uses its own on-chain order books (and also has a native AMM called HyperSwap in its ecosystem). For a user looking to trade tokens spot, how do they compare? Performance: Hyperliquid’s spot order books offer immediate execution with low latency, similar to a centralized exchange, and thanks to no gas fees on HyperCore, taking an order is cheap and fast. UniswapX aims to save users gas on Ethereum by abstracting execution, but ultimately the trade settlement still happens on Ethereum (or other underlying chains) and may incur latency (waiting for fillers and block confirmations). Liquidity: UniswapX sources liquidity from many AMMs and market makers across multiple DEXs, which is great for long-tail tokens on Ethereum; however, for major pairs, Hyperliquid’s single order book often has deeper liquidity and less slippage because all traders congregate in one venue. Indeed, after launching spot markets in March 2024, Hyperliquid quickly saw spot volumes surge to record levels, with large traders bridging assets like BTC, ETH, and SOL into Hyperliquid for spot trading due to the superior execution, then bridging back out. UniswapX excels at breadth of token access, whereas Hyperliquid focuses on depth and efficiency for a more curated set of assets (those listed via its governance/auction process). Decentralization and UX: Uniswap (and X) leverage Ethereum’s very decentralized base and are non-custodial, but aggregators like UniswapX do introduce off-chain actors (fillers relaying orders) – albeit in a permissionless way. Hyperliquid’s approach keeps all trading actions on-chain with full transparency, and any asset listed on Hyperliquid gets the benefits of native order book trading plus composability with its DeFi apps. The user experience on Hyperliquid is closer to a centralized trading app (which advanced users prefer), while UniswapX is more like a “meta-DEX” for one-click swaps (convenient for casual trades). Fees: UniswapX’s fees depend on the DEX liquidity used (typically 0.05–0.3% on AMMs) plus possibly a filler incentive; Hyperliquid’s spot fees are minimal and often offset by $HYPE discounts. In short, Hyperliquid competes with Uniswap and other spot DEXs by offering a new model: an order-book-based spot exchange on a custom chain. It has carved out a niche where high-volume spot traders (especially for large-cap assets) prefer Hyperliquid for its deeper liquidity and CEX-like experience, whereas retail users swapping obscure ERC-20s may still prefer Uniswap’s ecosystem. Notably, Hyperliquid’s ecosystem even introduced Hyperswap (an AMM on HyperEVM with ~$70M TVL) to capture long-tail tokens via AMM pools – acknowledging that AMMs and order books can coexist, serving different market segments.

Summary of Key Differences: The table below outlines a high-level comparison:

DEX PlatformDesign & ChainTrading ModelPerformanceDecentralizationFee Mechanism
HyperliquidCustom L1 (HyperBFT PoS, ~27 validators)On-chain CLOB for perps/spot; also EVM apps~0.5s finality, 100k+ tx/sec, CEX-like UIPoS chain (community-run, unified state for dApps)Tiny trading fees, ~97% of fees buy back $HYPE (indirectly rewarding holders)
dYdX v4Cosmos SDK app-chain (PoS, ~20 validators)On-chain CLOB for perps only (no general smart contracts)~1-2s finality, high throughput (order matching by validators)PoS chain (decentralized matching, but not EVM-composable)Trading fees paid in USDC; DYDX token for governance & discounts (no fee buyback)
GMXArbitrum & Avalanche (Ethereum L2/L1)AMM pooled liquidity (GLP) with oracle pricing for perpsDependent on oracle update (~30s); good for casual trades, not HFTSecured by Ethereum/Avax L1; fully on-chain but relies on centralized oracles~0.1% trading fee; 70% to liquidity providers (GLP), 30% to GMX stakers (revenue sharing)
UniswapXEthereum mainnet (and cross-chain)Aggregator for spot swaps (routes across AMMs or RFQ market makers)~12s Ethereum block time (fills abstracted off-chain); gas fees abstractedRuns on Ethereum (high base security); uses off-chain filler nodes for executionUses underlying AMM fees (0.05–0.3%) + potential filler incentive; UNI token not required for use

In essence, Hyperliquid has set a new benchmark by combining the strengths of these approaches without the usual weaknesses: it offers the sophisticated order types, speed, and liquidity of a CEX (surpassing dYdX’s earlier attempt), without sacrificing the transparency and permissionless nature of DeFi (improving on GMX’s performance and Uniswap’s composability). As a result, rather than simply stealing market share from dYdX or GMX, Hyperliquid actually expanded the on-chain trading market by attracting traders who previously stayed on CEXs. Its success has spurred others to evolve – for example, even Coinbase and Robinhood have eyed entering the on-chain perps market, though with much lower leverage and liquidity so far. If this trend continues, we can expect a competitive push where both CEXs and DEXs race to combine performance with trustlessness – a race where Hyperliquid currently enjoys a strong lead.

Ecosystem Growth, Partnerships, and Community Initiatives

One of Hyperliquid’s greatest achievements in 2025 is growing from a single-product exchange into a thriving blockchain ecosystem. The launch of HyperEVM unlocked a Cambrian explosion of projects and partnerships building around Hyperliquid’s core, making it not just a trading venue but a full DeFi and Web3 environment. Here we explore the ecosystem’s expansion and key strategic alliances:

Ecosystem Projects and Developer Traction: Since early 2025, dozens of dApps have deployed on Hyperliquid, attracted by its built-in liquidity and user base. These span the gamut of DeFi primitives and even extend to NFTs and gaming:

  • Decentralized Exchanges (DEXs): Besides Hyperliquid’s native order books, community-built DEXs have appeared to serve other needs. Notably, Hyperswap launched as an AMM on HyperEVM, quickly becoming the leading liquidity hub for long-tail tokens (it amassed >70M TVL and \2B volume within 4 months). Hyperswap’s automated pools complement Hyperliquid’s CLOB by allowing permissionless listing of new tokens and providing an easy venue for projects to bootstrap liquidity. Another project, KittenSwap (a Velodrome fork with ve(3,3) tokenomics), also went live to offer incentivized AMM trading for smaller assets. These DEX additions ensure that even meme coins and experimental tokens can thrive on Hyperliquid via AMMs, while the major assets trade on order books – a synergy that drives overall volume.
  • Lending and Yield Protocols: The Hyperliquid ecosystem now features money markets and yield optimizers that interlink with the exchange. HyperBeat is a flagship lending/borrowing protocol on HyperEVM (with ~145M TVL as of mid-2025). It allows users to deposit assets like \HYPE, stablecoins, or even LP tokens to earn interest, and to borrow against collateral to trade on Hyperliquid with extra leverage. Because HyperBeat can read Hyperliquid’s order book prices directly and even trigger on-chain liquidations via HyperCore, it operates more efficiently and safely than cross-chain lending protocols. Yield aggregators are emerging too – HyperBeat’s “Hearts” rewards program and others incentivize providing liquidity or vault deposits. Another notable entrant is Kinetiq, a liquid staking project for $HYPE that drew over $400M in deposits on day one, indicating huge community appetite for earning yield on HYPE. Even external Ethereum-based protocols are integrating: EtherFi, a major liquid staking provider (with ~$9B in ETH staked) announced a collaboration to bring staked ETH and new yield strategies into Hyperliquid via HyperBeat. This partnership will introduce beHYPE, a liquid staking token for HYPE, and potentially bring EtherFi’s staked ETH as collateral to Hyperliquid’s markets. Such moves show confidence from established DeFi players in the Hyperliquid ecosystem’s potential.
  • Stablecoins and Crypto Banking: Recognizing the need for stable on-chain currency, Hyperliquid has attracted both external and native stablecoin support. Most significantly, Circle (issuer of USDC) formed a strategic partnership to launch native USDC on Hyperliquid in 2025. Using Circle’s Cross-Chain Transfer Protocol (CCTP), users will be able to burn USDC on Ethereum and mint 1:1 USDC on Hyperliquid, eliminating wrappers and enabling direct stablecoin liquidity on the chain. This integration is expected to streamline large transfers of capital into Hyperliquid and reduce reliance on only bridged USDT/USDC. In fact, by the time of announcement, Hyperliquid’s assets under management surged to $5.5B, partly on anticipation of native USDC support. On the native side, projects like Hyperstable have launched an over-collateralized stablecoin (USH) on HyperEVM with yield-bearing governance token PEG – adding diversity to the stablecoin options available for traders and DeFi users.
  • Innovative DeFi Infrastructure: Hyperliquid’s unique capabilities have spurred innovation in DEX design and derivatives. Valantis, for example, is a modular DEX protocol on HyperEVM that lets developers create custom AMMs and “sovereign pools” with specialized logic. It supports advanced features like rebase tokens and dynamic fees, and has $44M TVL, showcasing that teams see Hyperliquid as fertile ground for pushing DeFi design forward. For perpetuals specifically, the community passed HIP-3 which opened Hyperliquid’s Core engine to anyone who wants to launch a new perpetual market. This is a game-changer: it means if a user wants a perp market for, say, a stock index or a commodity, they can deploy it (subject to governance parameters) without needing Hyperliquid’s team – a truly permissionless derivative framework much like Uniswap did for ERC20 swaps. Already, community-launched markets for novel assets are appearing, demonstrating the power of this openness.
  • Analytics, Bots, and Tooling: A vibrant array of tools has emerged to support traders on Hyperliquid. For instance, PvP.trade is a Telegram-based trading bot that integrates with Hyperliquid’s API, enabling users to execute perp trades via chat and even follow friends’ positions for a social trading experience. It ran a points program and token airdrop that proved quite popular. On the analytics side, AI-driven platforms like Insilico Terminal and Katoshi AI have added support for Hyperliquid, providing traders with advanced market signals, automated strategy bots, and predictive analytics tailored to Hyperliquid’s markets. The presence of these third-party tools indicates that developers view Hyperliquid as a significant market – worth building bots and terminals for – similar to how many tools exist for Binance or Uniswap. Additionally, infrastructure providers have embraced Hyperliquid: QuickNode and others offer RPC endpoints for the Hyperliquid chain, Nansen has integrated Hyperliquid data into its portfolio tracker, and blockchain explorers and aggregators are supporting the network. This infrastructure adoption is crucial for user experience and signifies that Hyperliquid is recognized as a major network in the multi-chain landscape.
  • NFTs and Gaming: Beyond pure finance, Hyperliquid’s ecosystem also dabbles in NFTs and crypto gaming, adding community flavor. HypurrFun is a meme coin launchpad that gained attention by using a Telegram bot auction system to list jokey tokens (like $PIP and $JEFF) on Hyperliquid’s spot market. It provided a fun, Pump.win-style experience for the community and was instrumental in testing Hyperliquid’s token auction mechanisms pre-HyperEVM. NFT projects like Hypio (an NFT collection integrating DeFi utility) have launched on Hyperliquid, and even an AI-powered game (TheFarm.fun) is leveraging the chain for minting creative NFTs and planning a token airdrop. These may be niche, but they indicate an organic community forming – traders who also engage in memes, NFTs, and social games on the same chain, increasing user stickiness.

Strategic Partnerships: Alongside grassroots projects, Hyperliquid’s team (via the Hyper Foundation) has actively pursued partnerships to extend its reach:

  • Phantom Wallet (Solana Ecosystem): In July 2025, Hyperliquid announced a major partnership with Phantom, the popular Solana wallet, to bring in-wallet perpetuals trading to Phantom’s users. This integration allows Phantom’s mobile app (with millions of users) to trade Hyperliquid perps natively, without leaving the wallet interface. Over 100+ markets with up to 50× leverage became available in Phantom, covering BTC, ETH, SOL and more, with built-in risk controls like stop-loss orders. The significance is twofold: it gives Solana community users easy access to Hyperliquid’s markets (bridging ecosystems), and it showcases Hyperliquid’s API and backend strength – Phantom wouldn’t integrate a DEX that couldn’t handle large user flow. Phantom’s team highlighted that Hyperliquid’s liquidity and quick settlement were key to delivering a smooth mobile trading UX. This partnership essentially embeds Hyperliquid as the “perps engine” inside a leading crypto wallet, dramatically lowering friction for new users to start trading on Hyperliquid. It’s a strategic win for user acquisition and demonstrates Hyperliquid’s intent to collaborate rather than compete with other ecosystems (Solana in this case).
  • Circle (USDC): As mentioned, Circle’s partnership to deploy native USDC via CCTP on Hyperliquid is a cornerstone integration. It not only legitimizes Hyperliquid as a first-class chain in the eyes of a major stablecoin issuer, but it also solves a critical piece of infrastructure: fiat liquidity. When Circle turns on native USDC for Hyperliquid, traders will be able to transfer dollars in/out of Hyperliquid’s network with the same ease (and trust) as moving USDC on Ethereum or Solana. This streamlines arbitrage and cross-exchange flows. Additionally, Circle’s Cross-Chain Transfer Protocol v2 will allow USDC to move between Hyperliquid and other chains without intermediaries, further integrating Hyperliquid into the multi-chain liquidity network. By July 2025, anticipation of USDC and other assets coming on board had already driven Hyperliquid’s total asset pools to $5.5B. We can expect this number to grow once the Circle integration is fully live. In essence, this partnership addresses one of the last barriers for traders: easy fiat on/off ramps into Hyperliquid’s high-speed environment.
  • Market Makers and Liquidity Partners: While not always publicized, Hyperliquid has likely cultivated relationships with professional market-making firms to bootstrap its order book liquidity. The depth observed (often rivaling Binance on some pairs) suggests that major crypto liquidity providers (possibly firms like Wintermute, Jump, etc.) are actively making markets on Hyperliquid. One indirect indicator: Auros Global, a trading firm, published a “Hyperliquid listing 101” guide in early 2025 noting Hyperliquid averaged $6.1B daily perps volume in Q1 2025, which implies market makers are paying attention. Additionally, Hyperliquid’s design (with incentives like maker rebates or HLP yields) and the no-gas benefit are very attractive to HFT firms. Although specific MM partnerships aren’t named, the ecosystem clearly benefits from their participation.
  • Others: The Hyper Foundation, which stewards protocol development, has begun initiatives like a Delegation Program to incentivize reliable validators and global community programs (a Hackathon with $250k prizes was held in 2025). These help strengthen the network’s decentralization and bring in new talent. There’s also collaboration with oracle providers (Chainlink or Pyth) for external data when needed – e.g. if any synthetic real-world asset markets launch, those partnerships will be important. Given that Hyperliquid is EVM-compatible, tooling from Ethereum (like Hardhat, The Graph, etc.) can be relatively easily extended to Hyperliquid as developers demand.

Community and Governance: Community engagement in Hyperliquid has been high due to the early airdrop and ongoing governance votes. The Hyperliquid Improvement Proposal (HIP) framework has seen important proposals (HIP-1 to HIP-3) passed in its first year, signaling an active governance process. The community has played a role in token listings via Hyperliquid’s auction model – new tokens launch through an on-chain auction (often facilitated by HypurrFun or similar), and successful auctions get listed on the order book. This process, while permissioned by a fee and vetting, has allowed community-driven tokens (like meme coins) to gain traction on Hyperliquid without centralized gatekeeping. It also helped Hyperliquid avoid spam tokens since there’s a cost to list, ensuring only serious projects or enthusiastic communities pursue it. The result is an ecosystem that balances permissionless innovation with a degree of quality control – a novel approach in DeFi.

Moreover, the Hyper Foundation (a non-profit entity) was set up to support ecosystem growth. It has been responsible for initiatives like the $HYPE token launch and managing the incentive funds. The Foundation’s decision to not issue incentives recklessly (as noted in The Defiant, they provided no extra liquidity mining after the airdrop) may have initially tempered some yield-farmers, but it underscores a focus on organic usage over short-term TVL boosts. This strategy appears to have paid off with steady growth. Now, moves like EtherFi’s involvement and others show that even without massive liquidity mining, real DeFi activity is taking root on Hyperliquid due to its unique opportunities (like high yields from actual fee revenue and access to an active trading base).

To summarize, Hyperliquid in 2025 is surrounded by a flourishing ecosystem and strong alliances. Its chain is home to a comprehensive DeFi stack – from perps and spot trading, to AMMs, lending, stablecoins, liquid staking, NFTs, and beyond – much of which sprung up just in the past year. Strategic partnerships with the likes of Phantom and Circle are expanding its user reach and liquidity access across the crypto universe. The community-driven aspects (auctions, governance, hackathons) show an engaged user base that is increasingly invested in Hyperliquid's success. All these factors reinforce Hyperliquid's position as more than an exchange; it's becoming a holistic financial layer.

Future Outlook: Hyperliquid’s Vision for Onchain Finance (Derivatives, RWAs, and Beyond)

Hyperliquid’s rapid ascent begs the question: What’s next? The project’s vision has always been ambitious – to become the foundational infrastructure for all of onchain finance. Having achieved dominance in on-chain perps, Hyperliquid is poised to expand into new products and markets, potentially reshaping how traditional financial assets interact with crypto. Here are some key elements of its forward-looking vision:

  • Expanding the Derivatives Suite: Perpetual futures were the initial beachhead, but Hyperliquid can extend to other derivatives. The architecture (HyperCore + HyperEVM) could support additional instruments like options, interest rate swaps, or structured products. A logical next step might be an on-chain options exchange or an options AMM launching on HyperEVM, leveraging the chain’s liquidity and fast execution. With unified state, an options protocol on Hyperliquid could directly hedge via the perps order book, creating efficient risk management. We haven’t seen a major on-chain options platform emerge on Hyperliquid yet, but given the ecosystem’s growth, it’s plausible for 2025-26. Additionally, traditional futures and tokenized derivatives (e.g. futures on stock indices, commodities, or FX rates) could be introduced via HIP proposals – essentially bringing traditional finance markets on-chain. Hyperliquid’s HIP-3 already paved the way for listing “any asset, crypto or traditional” as a perp market so long as there’s an oracle or price feed. This opens the door for community members to launch markets on equities, gold, or other assets in a permissionless way. If liquidity and legal considerations allow, Hyperliquid could become a hub for 24/7 tokenized trading of real-world markets, something even many CEXs don’t offer at scale. Such a development would truly realize the vision of a unified global trading platform on-chain.
  • Real-World Assets (RWAs) and Regulated Markets: Bridging real-world assets into DeFi is a major trend, and Hyperliquid is well-positioned to facilitate it. Through HyperUnit and partnerships like Circle, the chain is integrating with real assets (fiat via USDC, BTC/SOL via wrapped tokens). The next step might be tokenized securities or bonds trading on Hyperliquid. For example, one could imagine a future where government bonds or stocks are tokenized (perhaps under regulatory sandbox) and traded on Hyperliquid’s order books 24/7. Already, Hyperliquid’s design is “regulatory-aware” – the use of native assets instead of synthetic IOUs can simplify compliance. The Hyper Foundation could explore working with jurisdictions to allow certain RWAs on the platform, especially as on-chain KYC/whitelisting tech improves (HyperEVM could support permissioned pools if needed for regulated assets). Even without formal RWA tokens, Hyperliquid’s permissionless perps could list derivatives that track RWAs (for instance, a perpetual swap on the S&P 500 index). That would bring RWA exposure to DeFi users in a roundabout but effective way. In summary, Hyperliquid aims to blur the line between crypto markets and traditional markets – to house all finance, you eventually need to accommodate assets and participants from the traditional side. The groundwork (in tech and liquidity) is being laid for that convergence.
  • Scaling and Interoperability: Hyperliquid will continue to scale vertically (more throughput, more validators) and likely horizontally via interoperability. With Cosmos IBC or other cross-chain protocols, Hyperliquid might connect to wider networks, allowing assets and messages to flow trustlessly. It already uses Circle’s CCTP for USDC; integration with something like Chainlink’s CCIP or Cosmos’s IBC could extend cross-chain trading possibilities. Hyperliquid could become a liquidity hub that other chains tap into (imagine dApps on Ethereum or Solana executing trades on Hyperliquid via trustless bridges – getting Hyperliquid’s liquidity without leaving their native chain). The mention of Hyperliquid as a “liquidity hub” and its growing open interest share (already ~18% of the entire crypto futures OI by mid-2025) indicates it might anchor a larger network of DeFi protocols. The Hyper Foundation’s collaborative approach (e.g. partnering with wallets, other L1s) suggests they see Hyperliquid as part of a multi-chain future rather than an isolated island.
  • Advanced DeFi Infrastructure: By combining a high-performance exchange with general programmability, Hyperliquid could enable sophisticated financial products that were not previously feasible on-chain. For example, on-chain hedge funds or vault strategies can be built on HyperEVM that execute complex strategies directly through HyperCore (arbitrage, automated market making on order books, etc.) all on one chain. This vertical integration eliminates inefficiencies like moving funds across layers or being front-run by MEV bots during cross-chain arbitrage – everything can happen under HyperBFT consensus with full atomicity. We may see growth in automated strategy vaults that use Hyperliquid’s primitives to generate yield (some early vaults likely exist already, possibly run by HyperBeat or others). Hyperliquid’s founder summarized the strategy as “polish a native application and then grow into general-purpose infrastructure”. Now that the native trading app is polished and a broad user base is present, the door is open for Hyperliquid to become a general DeFi infrastructure layer. This could put it in competition not just with DEXs but with Layer-1s like Ethereum or Solana for hosting financial dApps – albeit Hyperliquid’s specialty will remain anything requiring deep liquidity or low latency.
  • Institutional Adoption and Compliance: Hyperliquid’s future likely involves courting institutional players – hedge funds, market makers, even fintech firms – to use the platform. Already, institutional interest is rising given the volumes and the fact that firms like Coinbase, Robinhood, and others are eyeing perps. Hyperliquid might position itself as the infrastructure provider for institutions to go on-chain. It could offer features like sub-accounts, compliance reporting tools, or whitelisted pools (if needed for certain regulated users) – all while preserving the public, on-chain nature for retail. The regulatory climate will influence this: if jurisdictions clarify the status of DeFi derivatives, Hyperliquid could either become a licensed venue in some form or remain a purely decentralized network that institutions plug into indirectly. The mention of “regulatory-aware design” suggests the team is mindful of striking a balance that allows real-world integration without falling afoul of laws.
  • Continuous Community Empowerment: As the platform grows, more decision-making may shift to token holders. We can expect future HIPs to cover things like adjusting fee parameters, allocating the incentive fund (the ~39% of supply set aside), introducing new products (e.g. if an options module were proposed), and expanding validator sets. The community will play a big role in guiding Hyperliquid’s trajectory, effectively acting as the shareholders of this decentralized exchange. The community treasury (funded by any tokens not yet distributed and possibly by any revenue not used in buybacks) could be directed to fund new projects on Hyperliquid or provide grants, further bolstering ecosystem development.

Conclusion: Hyperliquid in 2025 has achieved what many thought impossible: a fully on-chain exchange that rivals centralized platforms in performance and liquidity. Its technical architecture – HyperBFT, HyperCore, HyperEVM – has proven to be a blueprint for the next generation of financial networks. The $HYPE token model aligns the community tightly with the platform’s success, creating one of the most lucrative and deflationary token economies in DeFi. With massive trading volumes, a ballooning user base, and a fast-growing DeFi ecosystem around it, Hyperliquid has positioned itself as a premier layer-1 for financial applications. Looking ahead, its vision of becoming “the blockchain to house all finance” does not seem far-fetched. By bringing more asset classes on-chain (potentially including real-world assets) and continuing to integrate with other networks and partners, Hyperliquid could serve as the backbone for a truly global, 24/7, decentralized financial system. In such a future, the lines between crypto and traditional markets blur – and Hyperliquid’s blend of high performance and trustless architecture may well be the model that bridges them, building the future of onchain finance one block at a time.

Sources:

  1. QuickNode Blog – “Hyperliquid in 2025: A High-Performance DEX...” (Architecture, metrics, tokenomics, vision)
  2. Artemis Research – “Hyperliquid: A Valuation Model and Bull Case” (Market share, token model, comparisons)
  3. The Defiant – “EtherFi Expands to HyperLiquid…HyperBeat” (Ecosystem TVL, institutional interest)
  4. BlockBeats – “Inside Hyperliquid’s Growth – Semiannual Report 2025” (On-chain metrics, volume, OI, user stats)
  5. Coingape – “Hyperliquid Expands to Solana via Phantom Partnership” (Phantom wallet integration, mobile perps)
  6. Mitrade/Cryptopolitan – “Circle integrates USDC with Hyperliquid” (Native USDC launch, $5.5B AUM)
  7. Nansen – “What is Hyperliquid? – Blockchain DEX & Trading Explained” (Technical overview, sub-second finality, token uses)
  8. DeFi Prime – “Exploring the Hyperliquid Chain Ecosystem: Deep Dive” (Ecosystem projects: DEXs, lending, NFTs, etc.)
  9. Hyperliquid Wiki/Docs – Hyperliquid GitBook & Stats (Asset listings via HIPs, stats dashboard)
  10. CoinMarketCap – Hyperliquid (HYPE) Listing (Basic info on Hyperliquid L1 and on-chain order book design)

President’s Working Group on Financial Markets: Latest Digital Asset Reports (2024–2025)

· 35 min read
Dora Noda
Software Engineer

Background and Recent PWG Reports on Digital Assets

The President’s Working Group on Financial Markets (PWG) – a high-level U.S. interagency panel – has recently focused on digital assets in response to the rapid growth of crypto markets. In late 2024 and 2025, the PWG (rechartered as the Working Group on Digital Asset Markets under a January 2025 Executive Order) produced comprehensive recommendations for crypto regulation. The most significant publication is the July 30, 2025 PWG report titled “Strengthening American Leadership in Digital Financial Technology,” issued pursuant to an executive order by the U.S. President. This official report – accompanied by a White House fact sheet – lays out a federal roadmap for digital asset policy. It includes over 100 recommendations aiming to establish clear regulations, modernize financial rules, and reinforce U.S. leadership in crypto innovation. Key topics addressed span stablecoins, DeFi (decentralized finance), centralized crypto exchanges, tokenization of assets, custody solutions, market integrity and systemic risk, as well as the overall regulatory framework and enforcement approach for digital assets.

(The full PWG report is available via the White House website. Below, we summarize its main takeaways and analyze the implications for investors, industry operators, and global markets.)

Stablecoins and the Future of Payments

Stablecoins – privately issued digital currencies pegged to fiat (often the U.S. dollar) – receive special attention as “one of the most promising” applications of distributed ledger technology in payments. The PWG’s report views dollar-backed stablecoins as a groundbreaking payment innovation that can modernize U.S. payments infrastructure while reinforcing the primacy of the U.S. dollar in the digital economy. The report notes that widespread adoption of USD-pegged stablecoins could help move the U.S. off costly legacy payment systems and improve efficiency. To harness this potential, a federal regulatory framework for stablecoins has been endorsed. In fact, by July 2025 the U.S. enacted the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the GENIUS Act), the first national law governing payment stablecoin issuers. The PWG urges regulators to implement the new stablecoin law quickly and faithfully, establishing robust oversight and risk requirements for stablecoin issuers (e.g. reserve quality, redemption rights, interoperability standards).

Key PWG recommendations on stablecoins include:

  • Fast-track Stablecoin Regulations: Swiftly implement the GENIUS Act to provide stablecoin issuers a clear, federally supervised regime. This should include fit-for-purpose AML/CFT rules for stablecoin activities (e.g. customer due diligence, reporting of illicit transactions) to ensure safe integration of stablecoins into mainstream finance.
  • Reinforce U.S. Dollar Leadership: Encourage adoption of USD-backed stablecoins in both domestic and cross-border payments, as these can lower transaction costs and uphold the dollar’s global role. The PWG explicitly views well-regulated stablecoins as a tool to “strengthen the role of the U.S. dollar” in the digital era.
  • Oppose a U.S. CBDC: The Working Group pointedly opposes the creation of a U.S. central bank digital currency (CBDC), citing concerns over privacy and government overreach. It supports legislative efforts (such as the House-passed “Anti-CBDC Surveillance State Act”) to ban or restrict any U.S. CBDC initiative, thereby favoring private-sector stablecoin innovation over a federal digital currency. This stance reflects a priority on civil liberties and a market-led approach to digital dollars.

Overall, the PWG’s stablecoin guidance suggests that regulated stablecoins could become a pillar of future payments, provided there are strong consumer protections and financial stability guardrails. By enacting a stablecoin framework, the U.S. aims to prevent the risks of unregulated stablecoins (such as runs or loss of peg stability) while enabling the benefits of faster, cheaper transactions. The report warns that without broad and coherent oversight, stablecoins’ reliability as a payment instrument could be undermined, impacting market liquidity and confidence. Thus, clear rules are needed to support stablecoin growth without introducing systemic risk.

Decentralized Finance (DeFi) and Innovation

The PWG report recognizes Decentralized Finance (DeFi) as an emerging segment of the crypto industry that leverages smart contracts to provide financial services without traditional intermediaries. Rather than attempting to suppress DeFi, the Working Group adopts a cautiously supportive tone, urging policymakers to embrace DeFi technology and acknowledge its potential benefits. The recommendations aim to integrate DeFi into regulatory frameworks in a way that fosters innovation while addressing risks.

Key points and recommendations on DeFi include:

  • Integrate DeFi into Regulatory Frameworks: Congress and regulators should recognize DeFi’s potential in mainstream finance and work to incorporate it into existing laws. The report suggests that a “fit-for-purpose” approach is needed for digital asset market structure – one that eliminates regulatory blind spots but does not stifle novel decentralized models. For example, lawmakers are urged to clarify how laws apply to activities like decentralized trading or lending, possibly through new exemptions or safe harbors.
  • Clarify the Status of DeFi Protocols: The PWG notes that regulation should consider how “decentralized” a protocol truly is when determining compliance obligations. It recommends that software developers or providers who lack control over user assets not be treated as traditional financial intermediaries in the eyes of the law. In other words, if a DeFi platform is sufficiently decentralized (no single party controlling funds or making unilateral decisions), it might not trigger the same licensing as a centralized exchange or money transmitter. This principle aims to avoid unfairly imposing bank-like regulations on open-source developers or automated protocols.
  • AML/CFT in DeFi: A significant focus is on countering illicit finance in decentralized ecosystems. The PWG calls on regulators (and Congress, if needed) to clarify Bank Secrecy Act (BSA) obligations for DeFi participants. This means determining who in a DeFi context has anti-money laundering (AML) responsibilities – e.g. whether certain DeFi application front-ends, liquidity pool operators, or DAO entities should register as financial institutions. The report suggests tailoring AML/CFT requirements to different business models in crypto, and establishing criteria to identify when a system is truly decentralized versus under the control of an identifiable entity. It also emphasizes that even as the U.S. updates its rules, it should engage internationally (through bodies like FATF) to develop consistent global norms for DeFi oversight.

Implications of the PWG’s DeFi approach: By embracing DeFi’s promise, the PWG signals that crypto innovation can coexist with regulation. Regulators are encouraged to work with the industry – for instance, by possibly providing time-limited safe harbors or exemptions for new decentralized projects until they achieve sufficient decentralization or functionality. This reflects a shift from the earlier enforcement-centric approach to a more nuanced strategy that avoids treating all DeFi as inherently illicit. Still, the emphasis on AML means DeFi platforms may need to build in compliance features (like on-chain analytics tools or optional KYC portals) to detect and mitigate illicit activity. Ultimately, the PWG’s recommendations aim to legitimize DeFi within the U.S. financial system – allowing entrepreneurs to develop decentralized protocols onshore (rather than abroad) under clearer rules, and giving users greater confidence that DeFi services can operate above board rather than in legal gray areas.

Centralized Exchanges and Market Structure Oversight

A core theme of the PWG’s report is establishing a “fit-for-purpose market structure framework” for digital assets. This directly addresses the regulation of centralized crypto exchanges, trading platforms, and other intermediaries that facilitate the buying, selling, and custody of digital assets. In recent years, high-profile exchange failures and scandals highlighted gaps in oversight – for example, the collapse of FTX in 2022 exposed the lack of federal authority over crypto spot markets. The PWG’s latest recommendations seek to fill these regulatory gaps to protect consumers and ensure market integrity.

Key actions on market structure and exchanges include:

  • Clear Jurisdiction and Token Taxonomy: The report urges Congress to enact legislation (such as the proposed Digital Asset Market Clarity Act) that definitively classifies digital assets and delineates regulatory jurisdiction. In practice, this means identifying which tokens are “securities” versus “commodities” or other categories, and assigning oversight accordingly to the SEC or CFTC. Notably, the PWG suggests granting the Commodity Futures Trading Commission (CFTC) authority to oversee spot trading of non-security tokens (e.g. Bitcoin, Ether, and other commodities). This would eliminate the current gap where no federal regulator directly supervises cash markets for crypto commodities. The Securities and Exchange Commission (SEC) would retain authority over digital asset securities. By establishing a token taxonomy and regulatory split, exchanges and investors would know under which rules (SEC or CFTC) a given asset and its trading falls.
  • Federal Licensing of Crypto Trading Platforms: The PWG recommends that both the SEC and CFTC use their existing powers to enable crypto trading at the federal level – even before new legislation is passed. This could involve agencies providing tailored registration pathways or exemptive orders to bring major crypto exchanges into compliance. For example, the SEC could explore exemptions to allow trading of certain tokens on SEC-regulated ATS or broker-dealer platforms without full securities exchange registration. Likewise, the CFTC could use its “crypto sprint” initiative to permit listing of spot crypto commodities on regulated venues by extending commodity exchange rules. The goal is to “immediately enable the trading of digital assets at the Federal level” by giving market participants clarity on registration, custody, trading, and recordkeeping requirements. This would be a shift from the status quo, where many U.S. exchanges operate under state licenses (e.g. as money transmitters) without unified federal oversight.
  • Safe Harbors for Innovation: To encourage new products and services, the PWG endorses the use of safe harbors and sandboxes that allow innovative financial products to reach consumers with appropriate safeguards. For instance, the report favorably cites ideas like SEC Commissioner Hester Peirce’s proposed safe harbor for token projects (which would give startups a grace period to decentralize without full securities compliance). It also suggests regulators could allow pilot programs for things like tokenized securities trading or novel exchange models, under close monitoring. This approach aims to avoid “bureaucratic delays” in bringing new crypto offerings to market, which in the past have led U.S. firms to launch products overseas. Any safe harbor would be time-limited and conditioned on investor protection measures.

By formalizing oversight of centralized exchanges, the recommendations seek to bolster market integrity and reduce systemic risks. Federal supervision would likely impose stronger compliance standards (capital requirements, cybersecurity, audits, segregation of customer assets, etc.) on major crypto platforms. This means fewer opportunities for fraud or poor risk management – issues at the heart of past exchange collapses. In the PWG’s view, a well-regulated U.S. crypto market structure will protect consumers while keeping the industry’s center of gravity in America (rather than ceding that role to offshore jurisdictions). Notably, the House of Representatives had already passed a comprehensive market structure bill in 2024 with bipartisan support, and the PWG’s 2025 report strongly supports such legislation to “ensure the most cost-efficient and pro-innovation regulatory structure for digital assets.”

Tokenization of Assets and Financial Markets

Another forward-looking topic in the PWG report is asset tokenization – using blockchain tokens to represent ownership of real-world assets or financial instruments. The Working Group views tokenization as part of the next wave of fintech innovation that can make markets more efficient and accessible. It encourages regulators to modernize rules to accommodate tokenized assets in banking and securities markets.

Key insights on tokenization include:

  • Tokenized Bank Deposits and Payments: The report highlights ongoing private-sector experiments with tokenized bank deposits (sometimes called “deposit tokens”) which could enable instant settlement of bank liabilities on a blockchain. Regulators are urged to clarify that banks may tokenize their assets or deposits and treat such tokens similarly to traditional accounts under appropriate conditions. The PWG recommends banking agencies provide guidance on tokenization activities, ensuring that if a tokenized deposit is fully reserved and redeemable, it should not face undue legal barriers. Recently, large banks and consortia have explored interoperable tokenized money to improve payments, and the PWG wants U.S. rules to accommodate these developments so the U.S. remains competitive in payments tech.
  • Tokenized Securities and Investment Products: The SEC is encouraged to adapt existing securities regulations to permit tokenization of traditional assets. For example, Regulation ATS and exchange rules could be updated to allow trading of tokenized securities alongside crypto assets on the same platforms. The PWG also suggests the SEC consider explicit rules or exemptions for tokenized shares, bonds, or funds, such that the custody and transfer of these tokens can legally occur on distributed ledgers. This would involve ensuring that custody rules accommodate digital asset securities (e.g. clarifying how a broker or custodian can hold tokens on behalf of customers in compliance with the SEC’s custody rule). If successful, these steps could integrate blockchain efficiencies (like faster settlement and 24/7 trading) into mainstream capital markets, under regulated structures.

By addressing tokenization, the PWG acknowledges a future where traditional financial assets live on blockchain networks. Adapting regulations now could unlock new funding and trading models – for instance, private equity or real estate shares being fractionalized and traded as tokens 24/7, or bonds settling instantly via smart contracts. The recommendations imply that investor protections and disclosure requirements should travel with the asset into its tokenized form, but that the mere use of a blockchain should not prohibit innovation. In summary, the PWG urges U.S. regulators to future-proof their rules so that as finance evolves beyond paper certificates and legacy databases, the U.S. remains the leading venue for tokenized markets rather than letting other jurisdictions take the lead.

Crypto Custody and Banking Services

The report places strong emphasis on integrating digital assets into the U.S. banking system. It critiques past regulatory resistance that made banks hesitant to serve crypto clients (e.g. the so-called “Operation Choke Point 2.0” where crypto firms were debanked). Going forward, the PWG calls for a predictable, innovation-friendly banking regulatory environment for digital assets. This involves enabling banks to provide custody and other services, under clear guidelines.

Major recommendations for banks and custody include:

  • End Discriminatory Barriers: Regulators have “ended Operation Choke Point 2.0” – meaning agencies should no longer deny banking services to lawful crypto businesses simply due to their sector. The PWG insists bank regulators ensure that risk management policies are technology-neutral and do not arbitrarily exclude crypto clients. In practice, this means banks should be able to open accounts for exchanges, stablecoin issuers, and other compliant crypto firms without fear of regulatory reprisal. A stable banking partner network is critical for crypto markets (for fiat on/off ramps and trust), and the report seeks to normalize those relationships.
  • Clarity on Permissible Activities: The PWG recommends “relaunching crypto innovation efforts” within the bank regulatory agencies. Specifically, it asks the OCC, FDIC, and Federal Reserve to clarify what digital asset activities banks may engage in. This includes issuing updated guidance or regulations confirming that custody of crypto assets is a permissible activity for banks (with appropriate safeguards), that banks can assist customers in crypto trading or use public blockchains for settlement, and even that banks could issue stablecoins with proper oversight. Under the prior administration, the OCC had issued interpretive letters (in 2020–21) allowing national banks to custody crypto and hold reserves for stablecoin issuers; the PWG signals a return to that constructive guidance, but with interagency consistency.
  • Regulatory Process and Fairness: The report calls for greater transparency in bank chartering and Federal Reserve master account access for fintech and crypto firms. This means if a crypto-focused institution seeks a national bank charter or access to Fed payment systems, regulators should have a clear, fair process – potentially addressing concerns that novel applicants were being stonewalled. The PWG also urges parity across charter types (so, for example, a state-chartered crypto bank isn’t unfairly disadvantaged compared to a national bank). All regulated entities should have a pathway to offer digital asset services if they meet safety and soundness standards.
  • Align Capital Requirements with Risk: To encourage bank involvement, capital and liquidity rules should reflect the actual risks of digital assets rather than blanket high risk-weights. The PWG is critical of overly punitive capital treatment (such as a 1250% risk weight for certain crypto exposures as initially proposed by Basel). It advocates for revisiting international and U.S. bank capital standards to ensure that, for example, a tokenized asset or stablecoin fully backed by cash is not penalized more than the underlying asset itself. Right-sizing these rules would allow banks to hold crypto assets or engage in blockchain activities without incurring outsized capital charges that make such business uneconomical.

In summary, the PWG envisions banks as key infrastructure for a healthy digital asset ecosystem. By explicitly permitting custody and crypto-related banking, customers (from retail investors to institutional funds) would gain safer, insured options to store and transfer digital assets. Banks entering the space could also increase market stability – for instance, well-capitalized banks issuing stablecoins or settling crypto trades might reduce reliance on offshore or unregulated entities. The recommendations, if implemented, mean U.S. banks and credit unions could more freely compete in providing crypto custody, trading facilitation, and tokenization services, all under the umbrella of U.S. banking law. This would be a sea change from the 2018–2022 era, when many U.S. banks exited crypto partnerships under regulatory pressure. The PWG’s stance is that customer demand for digital assets is here to stay, and it’s better for regulated U.S. institutions to meet that demand in a transparent way.

Market Integrity and Systemic Risk Management

A driving rationale behind the PWG’s digital asset push is preserving market integrity and mitigating systemic risks as the crypto sector grows. The report acknowledges events like stablecoin failures and exchange bankruptcies that rattled markets in the past, and it aims to prevent such scenarios through proper oversight. Several recommendations implicitly target strengthening market resilience:

  • Filling Regulatory Gaps: As noted, giving the CFTC spot market authority and the SEC clearer authority over crypto securities is intended to bring all major trading under regulatory supervision. This would mean regular examinations of exchanges, enforcement of conduct rules (against market manipulation, fraud, insider trading), and requirements for risk management. By eliminating the “grey area” where large platforms operated outside federal purview, the likelihood of hidden problems (like commingling of funds or reckless lending) spilling into crises is reduced. In other words, robust oversight = healthier markets, with early detection of issues before they become systemic.
  • Stablecoin Stability and Backstops: The stablecoin framework (GENIUS Act) introduces prudential standards (e.g. high-quality reserves, audits, redemption guarantees) for payment stablecoins. This greatly lowers the risk of a stablecoin “breaking the buck” and causing a crypto market liquidity crunch. The report’s emphasis on dollar stablecoins reinforcing dollar dominance also implies a goal of avoiding a scenario where a poorly regulated foreign stablecoin (or an algorithmic stablecoin like the failed TerraUSD) could dominate and then collapse, harming U.S. users. Additionally, by considering stablecoins as potential payment system components, regulators can integrate them into the existing financial safety nets (for example, oversight akin to banks or money market funds) to absorb shocks.
  • Disclosure and Transparency: The PWG supports requiring appropriate disclosures and audits for crypto firms to improve transparency. This might involve exchanges publishing proof of reserves/liabilities, stablecoin issuers disclosing reserve holdings, crypto lenders providing risk factors, etc. Better information flow helps both consumers and regulators judge risks and reduces the chance of sudden loss of confidence due to unknown exposures. Market integrity is strengthened when participants operate with clearer, standardized reporting – analogous to public company financial reporting or regulated broker-dealer disclosures.
  • Monitoring Systemic Connections: The report also implicitly calls for regulators to watch intersections between crypto markets and traditional finance. As banks and hedge funds increasingly engage with crypto, regulators will need data and tools to monitor contagion risk. The PWG encourages leveraging technology (like blockchain analytics and inter-agency information sharing) to keep an eye on emerging threats. For example, if a stablecoin grew large enough, regulators might track its reserve flows or major corporate holders to foresee any run risk. Similarly, enhanced cooperation with global standard-setters (IOSCO, FSB, BIS, etc.) is recommended so that standards for crypto market integrity are aligned internationally, preventing regulatory arbitrage.

In essence, the PWG’s plan aims to integrate crypto into the regulatory perimeter in a risk-focused manner, thereby guarding the broader financial system. An important point the report makes is that inaction carries its own risk: “a lack of broad, coherent, and robust oversight can undermine stablecoins’ reliability... limiting their stability and potentially affecting the broader health of digital asset markets.” Unregulated crypto markets could also lead to “trapped liquidity” or fragmentation that exacerbates volatility. By contrast, the recommended framework would treat similar activities consistently (same risks, same rules), ensuring market integrity and fostering public trust, which in turn is necessary for market growth. The desired outcome is that crypto markets become safer for all participants, diminishing the likelihood that crypto-related shocks could have knock-on effects on the wider economy.

Regulatory Framework and Enforcement Approach

A notable shift in the PWG’s 2025 recommendations is the pivot from regulation-by-enforcement to proactive rulemaking and legislation. The report outlines a vision for a comprehensive regulatory framework that is developed transparently and in collaboration with industry, rather than solely through after-the-fact enforcement actions or patchwork state rules. Key elements of this framework and enforcement philosophy include:

  • New Legislation to Fill in the Blanks: The PWG explicitly calls on Congress to enact major digital asset laws – building on efforts already underway. Two priority areas are market structure legislation (like the CLARITY Act) and stablecoin legislation (the GENIUS Act, now law). By codifying rules in statute, regulators will have clear mandates and tools for oversight. For example, once the CLARITY Act (or similar) is passed, the SEC and CFTC will have defined boundaries and possibly new authorities (such as the CFTC’s spot market oversight). This reduces regulatory turf wars and uncertainty. The PWG also backs bills to ensure crypto taxation is predictable and that CBDCs are prohibited absent congressional approval. In sum, the PWG sees Congress as a crucial player in providing regulatory certainty through legislation that keeps pace with crypto innovation. Lawmakers in 2024–2025 have shown bipartisan interest in such frameworks, and the PWG’s report reinforces that momentum.

  • Use of Existing Authorities – Guidance and Exemptions: While awaiting new laws, the PWG wants financial regulators to actively use their rulemaking and exemptive powers under current law to clarify crypto rules now. This includes the SEC tailoring securities rules (e.g. defining how crypto trading platforms can register, or exempting certain token offerings under a new safe harbor). It includes the CFTC issuing guidance on what tokens are considered commodities and how brokers and funds should handle crypto. And it includes Treasury/FinCEN updating or rescinding outdated guidance that may hinder innovation (for instance, reviewing prior AML guidance to ensure it aligns with new laws and doesn’t unnecessarily burden non-custodial actors). Essentially, regulators are encouraged to proactively clarify gray areas – from custody rules to definitions – before crises occur or enforcement becomes the default. The report even suggests regulators consider no-action letters, pilot programs, or interim final rules as tools to provide quicker clarity to the market.

  • Balanced Enforcement: Target Bad Actors, Not Technology. The PWG advocates an enforcement posture that is aggressive on illicit activity but fair to lawful innovation. One recommendation is that regulators “prevent the misuse of authorities to target lawful activities of law-abiding citizens”. This is a direct response to concerns that previous regulators applied bank regulations or securities laws in an overly punitive way to crypto firms, or pursued enforcement without giving clarity. Going forward, enforcement should focus on fraud, manipulation, sanctions evasion, and other crimes – areas where the report also calls for bolstering agencies’ tools and training. At the same time, responsible actors who seek to comply should get guidance and the opportunity to do so, rather than being ambushed by enforcement. The end of “Operation Choke Point 2.0” and closure of certain high-profile enforcement cases in early 2025 (as noted by officials) underscores this shift. That said, the PWG does not suggest going soft on crime – it actually recommends enhancing blockchain surveillance, information sharing, and global coordination to trace illicit funds and enforce sanctions in crypto. In summary, the approach is tough on illicit finance, welcoming to legitimate innovation.

  • Tax Compliance and Clarity: A part of the regulatory framework often overlooked is taxation. The PWG addresses this by urging the IRS and Treasury to update guidance so that crypto taxation is more fair and predictable. For example, providing clarity on whether small crypto transactions qualify for de minimis tax exemptions, how staking rewards or “wrapped” tokens are taxed, and ensuring crypto assets are subject to anti-abuse rules like the wash-sale rule. Clear tax rules and reporting requirements will improve compliance and make it easier for U.S. investors to meet obligations without excessive burden. The report suggests collaboration with industry tax experts to craft practical rules. Improved tax clarity is part of the broader enforcement picture too – it reduces the likelihood of tax evasion in crypto and signals that digital assets are being normalized within financial regulations.

In effect, the PWG’s plan outlines a comprehensive regulatory framework where all major aspects of the crypto ecosystem (trading platforms, assets, issuers, banks, investors, and illicit finance controls) are covered by updated rules. This framework is designed to replace the current patchwork (where some activities fall between regulators or rely on enforcement to set precedent) with explicit guidelines and licenses. Enforcement will still play a role, but ideally as a backstop once rules are in place – going after outright frauds or sanctions violators – rather than as the primary tool to shape policy. If implemented, such a framework would mark the maturation of U.S. crypto policy, giving both industry and investors a clearer rulebook to follow.

Implications for U.S.-Based Investors

For U.S. investors, the PWG’s recommendations promise a safer and more accessible crypto market. Key impacts include:

  • Greater Consumer Protection: With federal oversight of exchanges and stablecoin issuers, investors should benefit from stronger safeguards against fraud and insolvency. Regulatory oversight would require exchanges to segregate customer assets, maintain adequate reserves, and follow conduct rules – reducing the risk of losing funds to another exchange collapse or scam. Enhanced disclosures (e.g. audits of stablecoin reserves or risk reports from crypto firms) will help investors make informed decisions. Overall, the market integrity measures aim to protect investors much like securities and banking laws do in traditional markets. This could increase public confidence in participating in digital assets.
  • More Investment Opportunities: The establishment of clear rules may unlock new crypto investment products in the U.S. For instance, if tokenized securities are allowed, investors could access fractional shares of assets that were previously illiquid. If the SEC provides a pathway for spot Bitcoin ETFs or registered trading of top crypto commodities, retail investors could get exposure through familiar, regulated vehicles. The emphasis on allowing innovative products via safe harbors means U.S. investors might not have to go offshore or to unregulated platforms to find the latest crypto offerings. In the long run, bringing crypto into mainstream regulation could integrate it with brokerages and retirement accounts, further widening access (with proper risk warnings).
  • Continued USD Dominance in Crypto: By promoting USD-backed stablecoins and discouraging a U.S. CBDC, the framework doubles down on the U.S. dollar as the unit of account in global crypto markets. For U.S. investors, this means the crypto economy will likely remain dollar-centric – minimizing currency risk and potentially keeping dollar-denominated liquidity high. Payment stablecoins overseen by U.S. regulators may become ubiquitous in crypto trading and DeFi, ensuring U.S. investors can transact in a stable value they trust (versus volatile or foreign tokens). This also aligns with protecting investors from inflation or instability of non-USD stablecoins.
  • Fair Tax Treatment: The push to clarify and modernize crypto tax rules (such as exempting small transactions or defining tax treatment for staking) could reduce the compliance burden on individual investors. For example, a de minimis exemption might allow an investor to spend crypto for small purchases without triggering capital gains calculations on each cup of coffee – making crypto use more practical in daily life. Clear rules on staking or airdrops would prevent unexpected tax bills. In short, investors would get predictability, knowing how their crypto activities will be taxed ahead of time, and potentially relief in areas where current rules are overly onerous.

In combination, these changes create a more investor-friendly crypto environment. While new regulations can add some compliance steps (e.g. stricter KYC on all U.S. exchanges), the trade-off is a market less prone to catastrophic failures and scams. U.S. investors would be able to engage in crypto with protections closer to those in traditional finance – a development that could encourage more participation from conservative investors and institutions that so far stayed on the sidelines due to regulatory uncertainty.

Implications for Crypto Operators (Exchanges, Custodians, DeFi Platforms)

For crypto industry operators, the PWG’s roadmap presents both opportunities and responsibilities. Some of the key impacts on exchanges, custodians, and DeFi developers/operators include:

  • Regulatory Clarity and New Licenses: Many crypto businesses have long sought clarity on “what rules apply” – the PWG report aims to deliver that. Exchanges dealing in non-security tokens might soon come under a clear CFTC licensing regime, while those dealing in security tokens would register with the SEC (or operate under an exemption). This clarity could attract more companies to become compliant rather than operate in regulatory gray areas. U.S. exchanges that obtain federal licensure may gain a competitive edge through increased legitimacy, able to advertise themselves as subject to rigorous oversight (potentially attracting institutional clients). Custodians (like Coinbase Custody or Anchorage) would similarly benefit from clear federal standards for digital asset custody – possibly even attaining bank charters or OCC trust charters with confidence that those are accepted. For DeFi platform teams, clarity on the conditions that would make them not a regulated entity (e.g. if truly decentralized and non-custodial) can guide protocol design and governance. On the other hand, if certain DeFi activities (like running a front-end or a DAO with admin keys) are deemed regulated, operators will at least know the rules and can adapt or register accordingly, rather than facing uncertain enforcement.
  • Compliance Burdens and Costs: With regulation comes increased compliance obligations. Exchanges will have to implement stricter KYC/AML programs, surveillance for market manipulation, cybersecurity programs, and likely reporting to regulators. This raises operational costs, which may be challenging for smaller startups. Custodial firms might need to maintain higher capital reserves or obtain insurance as required by regulators. Smart contract developers might be expected to include certain controls or risk mitigations (for example, the report hints at standards for code audits or backstops in stablecoin and DeFi protocols). Some DeFi platforms might need to geofence U.S. users or alter their interfaces to remain compliant with U.S. rules (for instance, if unmanned protocols are allowed but any affiliated web interface must block illicit use, etc.). Overall, there’s a trade-off between innovation freedom and compliance – the largest, most established firms will likely manage the new compliance costs, whereas some smaller or more decentralized projects might struggle or choose to block U.S. users if they can’t meet requirements.
  • Innovation via Collaboration: The PWG explicitly calls for public-private collaboration in crafting and implementing these new rules. This indicates regulators are open to input from the industry to ensure rules make sense technically. Crypto operators can seize this opportunity to work with policymakers (through comment letters, sandbox programs, industry associations) to shape practical outcomes. Additionally, the safe harbor concepts mean operators could have room to experiment – e.g. launching a new network under a time-bound exemption – which can accelerate innovation domestically. Firms like Chainalysis note that blockchain analytics and compliance tech will be essential to bridging gaps between industry and regulators, so crypto businesses will likely increase adoption of RegTech solutions. Those operators who invest early in compliance tools and cooperate with regulators may find themselves at an advantage when the framework solidifies. Conversely, firms that have relied on regulatory ambiguity or arbitrage will face a reckoning: they must either evolve and comply or risk enforcement crackdowns for non-compliance once clear rules are in place.
  • Expanded Market and Banking Access: On a positive note, ending the hostile stance means crypto companies should find it easier to access banking and capital. With regulators directing banks to treat crypto clients fairly, exchanges and stablecoin issuers can maintain secure fiat channels (e.g. stable banking relationships for customer deposits, wire transfers, etc.). More banks might also partner with crypto firms or acquire them, integrating crypto services into traditional finance. The ability for depository institutions to engage in tokenization and custody means crypto firms could collaborate with banks (for example, a stablecoin issuer partnering with a bank to hold reserves and even issue the token). If the Federal Reserve provides a clear path to payment system access, some crypto-native firms could become regulated payment companies in their own right, widening their services. In summary, legitimate operators will find a more welcoming environment to grow and attract mainstream investment under the PWG’s pro-innovation policy, as the “crypto capital of the world” vision is to encourage building in the U.S., not abroad.

In conclusion, crypto operators should prepare for a transition: the era of light or no regulation is ending, but a more stable and legitimized business environment is beginning. Those who adapt swiftly – upgrading compliance, engaging with policymakers, and aligning their business models with the forthcoming rules – could thrive with expanded market opportunities. Those who cannot meet the standards may consolidate or leave the U.S. market. Overall, the PWG’s report signals that the U.S. government wants a thriving crypto industry onshore, but under a rule of law that ensures trust and stability.

Implications for Global Crypto Markets and Compliance

The influence of the PWG’s digital asset recommendations will extend beyond U.S. borders, given the United States’ central role in global finance and the dollar’s reserve currency status. Here’s how the insights and recommendations may impact global crypto markets and international compliance:

  • Leadership in Global Standards: The U.S. is positioning itself as a leader in setting international norms for digital asset regulation. The PWG explicitly recommends that U.S. authorities engage in international bodies to shape standards for payments technology, crypto asset classifications, and risk management, ensuring they reflect “U.S. interests and values”. This likely means more active U.S. participation and influence at forums like the Financial Stability Board (FSB), International Organization of Securities Commissions (IOSCO), and the Financial Action Task Force (FATF) on matters such as stablecoin oversight, DeFi AML rules, and cross-border digital payments. As the U.S. implements its framework, other countries may follow suit or adjust their regulations to be compatible – much as foreign banks adapt to U.S. AML and sanctions expectations. A robust U.S. framework could become a de facto global benchmark, especially for jurisdictions that have yet to develop comprehensive crypto laws.
  • Competitive Pressure on Other Jurisdictions: By striving to become “the crypto capital of the world,” the U.S. is sending a message of openness to crypto innovation, albeit regulated innovation. This could spur a regulatory race-to-the-top: other major markets (Europe, UK, Singapore, Hong Kong, etc.) have also been rolling out crypto regimes (e.g. the EU’s MiCA regulation). If the U.S. framework is seen as balanced and successful – protecting consumers and fostering growth – it may attract capital and talent, prompting other countries to refine their policies to remain competitive. For example, stricter jurisdictions might soften rules to not drive businesses away, while very lax jurisdictions might raise standards to continue accessing U.S. markets under new rules (for instance, an offshore exchange registering with the CFTC to serve U.S. customers legally). Overall, global crypto firms will monitor U.S. policy closely: those rules might dictate whether they can operate in the lucrative American market and under what conditions.
  • Cross-Border Compliance and Enforcement: The PWG’s focus on AML/CFT and sanctions in crypto will resonate globally. Global crypto markets will likely see increased compliance expectations for anti-illicit finance controls, as the U.S. works with allies to close loopholes. This could mean more exchanges worldwide implementing robust KYC and transaction monitoring (often using blockchain analytics) to meet not just local laws but also U.S. standards, since U.S. regulators may condition market access on such compliance. Additionally, the recommendation for Treasury’s OFAC to update sanctions guidance for digital assets and gather industry feedback means clearer global guidelines on avoiding sanctioned addresses or entities. We may see greater coordination in enforcement actions across borders – e.g. U.S. DOJ working with foreign partners to tackle ransomware crypto flows or terrorist financing through DeFi, using the improved tools and legal clarity recommended by the PWG.
  • Effects on Global Market Liquidity and Innovation: If U.S. dollar stablecoins become more regulated and trusted, they could further penetrate global crypto trading and even emerging market use cases (e.g. as substitutes for local currency in high-inflation countries). A well-regulated USD stablecoin (with U.S. government oversight) might be adopted by foreign fintech apps, boosting dollarization – a geopolitical soft power win for the U.S.. Conversely, the U.S. rejecting a CBDC path could leave room for other major economies (like the EU with a digital euro, or China with its digital yuan) to set standards in state-backed digital money; however, the PWG clearly bets on private stablecoins over government coins in the global arena. On innovation, if the U.S. invites global crypto entrepreneurs “to build it with us” in America, we might see some migration of talent and capital to the U.S. from less friendly environments. However, the U.S. will need to implement its promises; otherwise, jurisdictions with clearer immediate regimes (like Switzerland or Dubai) could still attract startups. In any case, a healthy U.S. crypto sector integrated with traditional finance could increase overall liquidity in global markets, as more institutional money comes in under the new regulatory framework. That can reduce volatility and deepen markets, benefiting traders and projects worldwide.

From a global compliance perspective, one can anticipate a period of adjustment as international firms reconcile U.S. requirements with their local laws. Some foreign exchanges might choose to geofence U.S. users rather than comply (as we’ve seen with some derivative platforms), but the economic incentive to participate in the U.S. market is strong. As the PWG’s vision is implemented, any firm touching U.S. investors or the U.S. financial system will need to up its compliance game – effectively exporting U.S. standards abroad, much like FATF’s “Travel Rule” for crypto transfers has global reach. In summary, the PWG’s digital asset policies will not only shape the U.S. market but also influence the evolution of the global regulatory landscape, potentially ushering in a more uniformly regulated and safer international crypto environment.

Conclusion

The U.S. President’s Working Group on Financial Markets’ latest reports (2024–2025) mark a pivotal shift in crypto policy. They collectively articulate a comprehensive strategy to mainstream digital assets under a robust regulatory framework while championing innovation and American leadership. All major facets – from stablecoins and DeFi to exchanges, tokenization, custody, illicit finance, and taxation – are addressed with concrete recommendations. If these recommendations translate into law and regulatory action, the result will be a clearer rulebook for the crypto industry.

For U.S. investors, this means greater protections and confidence in the market. For crypto operators, it means clearer expectations and potentially broader opportunities, albeit with higher compliance responsibilities. And for the global crypto ecosystem, U.S. engagement and leadership could drive more consistency and legitimacy worldwide. The key takeaway is that crypto in the United States appears to have moved from an uncertain “Wild West” phase to an acknowledged permanent feature of the financial landscape – one that will be built together by public authorities and private innovators under the guidance of reports like these. The PWG’s vision, in essence, is to “usher in a Golden Age of Crypto” where the U.S. is the hub of a well-regulated yet dynamic digital asset economy. The coming months and years will test how these ambitious recommendations are implemented, but the direction is clearly set: towards a future of crypto that is safer, more integrated, and globally influential.

Sources:

  • U.S. White House – Fact Sheet: President’s Working Group on Digital Asset Markets Recommendations (July 30, 2025).
  • U.S. White House – Strengthening American Leadership in Digital Financial Technology (PWG Report, July 2025).
  • U.S. Treasury – Remarks by Treasury Secretary on White House Digital Assets Report Launch (July 30, 2025).
  • Chainalysis Policy Brief – Breakdown of PWG Digital Assets Report Recommendations (July 31, 2025).
  • Latham & Watkins – Summary of PWG Report on Digital Asset Markets (Aug 8, 2025).
  • U.S. House Financial Services Committee – Press Release on Digital Asset Framework Legislation (July 30, 2025).
  • President’s Working Group on Financial Markets – Report on Stablecoins (2021) (for historical context).

Cross-Chain Messaging and Shared Liquidity: Security Models of LayerZero v2, Hyperlane, and IBC 3.0

· 50 min read
Dora Noda
Software Engineer

Interoperability protocols like LayerZero v2, Hyperlane, and IBC 3.0 are emerging as critical infrastructure for a multi-chain DeFi ecosystem. Each takes a different approach to cross-chain messaging and shared liquidity, with distinct security models:

  • LayerZero v2 – a proof aggregation model using Decentralized Verifier Networks (DVNs)
  • Hyperlane – a modular framework often using a multisig validator committee
  • IBC 3.0 – a light client protocol with trust-minimized relayers in the Cosmos ecosystem

This report analyzes the security mechanisms of each protocol, compares the pros and cons of light clients vs. multisigs vs. proof aggregation, and examines their impact on DeFi composability and liquidity. We also review current implementations, threat models, and adoption levels, concluding with an outlook on how these design choices affect the long-term viability of multi-chain DeFi.

Security Mechanisms of Leading Cross-Chain Protocols

LayerZero v2: Proof Aggregation with Decentralized Verifier Networks (DVNs)

LayerZero v2 is an omnichain messaging protocol that emphasizes a modular, application-configurable security layer. The core idea is to let applications secure messages with one or more independent Decentralized Verifier Networks (DVNs), which collectively attest to cross-chain messages. In LayerZero’s proof aggregation model, each DVN is essentially a set of verifiers that can independently validate a message (e.g. by checking a block proof or signature). An application can require aggregated proofs from multiple DVNs before accepting a message, forming a threshold “security stack.”

By default, LayerZero provides some DVNs out-of-the-box – for example, a LayerZero Labs-operated DVN that uses a 2-of-3 multisig validation, and a DVN run by Google Cloud. But crucially, developers can mix and match DVNs: e.g. one might require a “1 of 3 of 5” configuration meaning a specific DVN must sign plus any 2 out of 5 others. This flexibility allows combining different verification methods (light clients, zkProofs, oracles, etc.) in one aggregated proof. In effect, LayerZero v2 generalizes the Ultra Light Node model of v1 (which relied on one Relayer + one Oracle) into an X-of-Y-of-N multisig aggregation across DVNs. An application’s LayerZero Endpoint contract on each chain will only deliver a message if the required DVN quorum has written valid attestations for that message.

Security characteristics: LayerZero’s approach is trust-minimized to the extent that at least one DVN in the required set is honest (or one zk-proof is valid, etc.). By letting apps run their own DVN as a required signer, LayerZero even allows an app to veto any message unless approved by the app team’s verifier. This can significantly harden security (at the cost of centralization), ensuring no cross-chain message executes without the app’s signature. On the other hand, developers may choose a more decentralized DVN quorum (e.g. 5 of 15 independent networks) for stronger trust distribution. LayerZero calls this “application-owned security”: each app chooses the trade-off between security, cost, and performance by configuring its DVNs. All DVN attestations are ultimately verified on-chain by immutable LayerZero Endpoint contracts, preserving a permissionless transport layer. The downside is that security is only as strong as the DVNs chosen – if the configured DVNs collude or are compromised, they could approve a fraudulent cross-chain message. Thus, the burden is on each application to select robust DVNs or risk weaker security.

Hyperlane: Multisig Validator Model with Modular ISMs

Hyperlane is an interoperability framework centered on an on-chain Interchain Security Module (ISM) that verifies messages before they’re delivered on the target chain. In the simplest (and default) configuration, Hyperlane’s ISM uses a multisignature validator set: a committee of off-chain validators signs attestations (often a Merkle root of all outgoing messages) from the source chain, and a threshold of signatures is required on the destination. In other words, Hyperlane relies on a permissioned validator quorum to confirm that “message X was indeed emitted on chain A,” analogous to a blockchain’s consensus but at the bridge level. For example, Wormhole uses 19 guardians with a 13-of-19 multisig – Hyperlane’s approach is similar in spirit (though Hyperlane is distinct from Wormhole).

A key feature is that Hyperlane does not have a single enshrined validator set at the protocol level. Instead, anyone can run a validator, and different applications can deploy ISM contracts with different validator lists and thresholds. The Hyperlane protocol provides default ISM deployments (with a set of validators that the team bootstrapped), but developers are free to customize the validator set or even the security model for their app. In fact, Hyperlane supports multiple types of ISMs, including an Aggregation ISM that combines multiple verification methods, and a Routing ISM that picks an ISM based on message parameters. For instance, an app could require a Hyperlane multisig and an external bridge (like Wormhole or Axelar) both to sign off – achieving a higher security bar via redundancy.

Security characteristics: The base security of Hyperlane’s multisig model comes from the honesty of a majority of its validators. If the threshold (e.g. 5 of 8) of validators collude, they could sign a fraudulent message, so the trust assumption is roughly N-of-M multisig trust. Hyperlane is addressing this risk by integrating with EigenLayer restaking, creating an Economic Security Module (ESM) that requires validators to put up staked ETH which can be slashed for misbehavior. This “Actively Validated Service (AVS)” means if a Hyperlane validator signs an invalid message (one not actually in the source chain’s history), anyone can present proof on Ethereum to slash that validator’s stake. This significantly strengthens the security model by economically disincentivizing fraud – Hyperlane’s cross-chain messages become secured by Ethereum’s economic weight, not just by social reputation of validators. However, one trade-off is that relying on Ethereum for slashing introduces dependency on Ethereum’s liveness and assumes fraud proofs are feasible to submit in time. In terms of liveness, Hyperlane warns that if not enough validators are online to meet the threshold, message delivery can halt. The protocol mitigates this by allowing a flexible threshold configuration – e.g. using a larger validator set so occasional downtime doesn’t stall the network. Overall, Hyperlane’s modular multisig approach provides flexibility and upgradeability (apps choose their own security or combine multiple sources) at the cost of adding trust in a validator set. This is a weaker trust model than a true light client, but with recent innovations (like restaked collateral and slashing) it can approach similar security guarantees in practice while remaining easier to deploy across many chains.

IBC 3.0: Light Clients with Trust-Minimized Relayers

The Inter-Blockchain Communication (IBC) protocol, widely used in the Cosmos ecosystem, takes a fundamentally different approach: it uses on-chain light clients to verify cross-chain state, rather than introducing a new validator set. In IBC, each pair of chains establishes a connection where Chain B holds a light client of Chain A (and vice versa). This light client is essentially a simplified replica of the other chain’s consensus (e.g. tracking validator set signatures or block hashes). When Chain A sends a message (an IBC packet) to Chain B, a relayer (an off-chain actor) carries a proof (Merkle proof of the packet and the latest block header) to Chain B. Chain B’s IBC module then uses the on-chain light client to verify that the proof is valid under Chain A’s consensus rules. If the proof checks out (i.e. the packet was committed in a finalized block on A), the message is accepted and delivered to the target module on B. In essence, Chain B trusts Chain A’s consensus directly, not an intermediary – this is why IBC is often called trust-minimized interoperability.

IBC 3.0 refers to the latest evolution of this protocol (circa 2025), which introduces performance and feature upgrades: parallel relaying for lower latency, custom channel types for specialized use cases, and Interchain Queries for reading remote state. Notably, none of these change the core light-client security model – they enhance speed and functionality. For example, parallel relaying means multiple relayers can ferry packets simultaneously to avoid bottlenecks, improving liveness without sacrificing security. Interchain Queries (ICQ) let a contract on Chain A ask Chain B for data (with a proof), which is then verified by A’s light client of B. This extends IBC’s capabilities beyond token transfers to more general cross-chain data access, still underpinned by verified light-client proofs.

Security characteristics: IBC’s security guarantee is as strong as the source chain’s integrity. If Chain A has honest majority (or the configured consensus threshold) and Chain B’s light client of A is up-to-date, then any accepted packet must have come from a valid block on A. There is no need to trust any bridge validators or oracles – the only trust assumptions are the native consensus of the two chains and some parameters like the light client’s trusting period (after which old headers expire). Relayers in IBC do not have to be trusted; they can’t forge valid headers or packets because those would fail verification. At worst, a malicious or offline relayer can censor or delay messages, but anyone can run a relayer, so liveness is eventually achieved if at least one honest relayer exists. This is a very strong security model: effectively decentralized and permissionless by default, mirroring the properties of the chains themselves. The trade-offs come in cost and complexity – running a light client (especially of a high-throughput chain) on another chain can be resource-intensive (storing validator set changes, verifying signatures, etc.). For Cosmos SDK chains using Tendermint/BFT, this cost is manageable and IBC is very efficient; but integrating heterogeneous chains (like Ethereum or Solana) requires complex client implementations or new cryptography. Indeed, bridging non-Cosmos chains via IBC has been slower — projects like Polymer and Composable are working on light clients or zk-proofs to extend IBC to Ethereum and others. IBC 3.0’s improvements (e.g. optimized light clients, support for different verification methods) aim to reduce these costs. In summary, IBC’s light client model offers the strongest trust guarantees (no external validators at all) and solid liveness (given multiple relayers), at the expense of higher implementation complexity and limitations that all participant chains must support the IBC protocol.

Comparing Light Clients, Multisigs, and Proof Aggregation

Each security model – light clients (IBC), validator multisigs (Hyperlane), and aggregated proofs (LayerZero) – comes with distinct pros and cons. Below we compare them across key dimensions:

Security Guarantees

  • Light Clients (IBC): Offers highest security by anchoring on-chain verification to the source chain’s consensus. There’s no new trust layer; if you trust the source blockchain (e.g. Cosmos Hub or Ethereum) not to double-produce blocks, you trust the messages it sends. This minimizes additional trust assumptions and attack surface. However, if the source chain’s validator set is corrupted (e.g. >⅓ in Tendermint or >½ in a PoS chain go rogue), the light client can be fed a fraudulent header. In practice, IBC channels are usually established between economically secure chains, and light clients can have parameters (like trusting period and block finality requirements) to mitigate risks. Overall, trust-minimization is the strongest advantage of the light client model – there is cryptographic proof of validity for each message.

  • Multisig Validators (Hyperlane & similar bridges): Security hinges on the honesty of a set of off-chain signers. A typical threshold (e.g. ⅔ of validators) must sign off on each cross-chain message or state checkpoint. The upside is that this can be made reasonably secure with enough reputable or economically staked validators. For example, Wormhole’s 19 guardians or Hyperlane’s default committee collectively have to collude to compromise the system. The downside is this introduces a new trust assumption: users must trust the bridge’s committee in addition to the chains. This has proven to be a point of failure in some hacks (e.g. if private keys are stolen or if insiders collude). Initiatives like Hyperlane’s restaked ETH collateral add economic security to this model – validators who sign invalid data can be automatically slashed on Ethereum. This moves multisig bridges closer to the security of a blockchain (by financially punishing fraud), but it’s still not as trust-minimized as a light client. In short, multisigs are weaker in trust guarantees: one relies on a majority of a small group, though slashing and audits can bolster confidence.

  • Proof Aggregation (LayerZero v2): This is somewhat a middle ground. If an application configures its Security Stack to include a light client DVN or a zk-proof DVN, then the guarantee can approach IBC-level (math and chain consensus) for those checks. If it uses a committee-based DVN (like LayerZero’s 2-of-3 default or an Axelar adapter), then it inherits that multisig’s trust assumptions. The strength of LayerZero’s model is that you can combine multiple verifiers independently. For example, requiring both “a zk-proof is valid” and “Chainlink oracle says the block header is X” and “our own validator signs off” could dramatically reduce attack possibilities (an attacker would need to break all at once). Also, by allowing an app to mandate its own DVN, LayerZero ensures no message will execute without the app’s consent, if so configured. The weakness is that if developers choose a lax security configuration (for cheaper fees or speed), they might undermine security – e.g. using a single DVN run by an unknown party would be similar to trusting a single validator. LayerZero itself is unopinionated and leaves these choices to app developers, which means security is only as good as the chosen DVNs. In summary, proof aggregation can provide very strong security (even higher than a single light client, by requiring multiple independent proofs) but also allows weak setups if misconfigured. It’s flexible: an app can dial up security for high-value transactions (e.g. require multiple big DVNs) and dial it down for low-value ones.

Liveness and Availability

  • Light Clients (IBC): Liveness depends on relayers and the light client staying updated. The positive side is anyone can run a relayer, so the system doesn’t rely on a specific set of nodes – if one relayer stops, another can pick up the job. IBC 3.0’s parallel relaying further improves availability by not serializing all packets through one path. In practice, IBC connections have been very reliable, but there are scenarios where liveness can suffer: e.g., if no relayer posts an update for a long time, a light client could expire (e.g. if trusting period passes without renewal) and then the channel closes for safety. However, such cases are rare and mitigated by active relayer networks. Another liveness consideration: IBC packets are subject to source chain finality – e.g. waiting 1-2 blocks in Tendermint (a few seconds) is standard. Overall, IBC provides high availability as long as there is at least one active relayer, and latency is typically low (seconds) for finalized blocks. There is no concept of a quorum of validators going offline as in multisig; the blockchain’s own consensus finality is the main latency factor.

  • Multisig Validators (Hyperlane): Liveness can be a weakness if the validator set is small. For example, if a bridge has 5-of-8 multisig and 4 validators are offline or unreachable, cross-chain messaging halts because the threshold can’t be met. Hyperlane documentation notes that validator downtime can halt message delivery, depending on the threshold configured. This is partly why having a larger committee or a lower threshold (with safety trade-off) might be chosen to improve uptime. Hyperlane’s design allows deploying new validators or switching ISM if needed, but such changes might require coordination/governance. The advantage multisig bridges have is typically fast confirmation once threshold signatures are collected – no need to wait for block finality of a source chain on the destination chain, since the multisig attestation is the finality. In practice, many multisig bridges sign and relay messages within seconds. So latency can be comparable or even lower than light clients for some chains. The bottleneck is if validators are slow or geographically distributed, or if any manual steps are involved. In summary, multisig models can be highly live and low-latency most of the time, but they have a liveness risk concentrated in the validator set – if too many validators crash or a network partition occurs among them, the bridge is effectively down.

  • Proof Aggregation (LayerZero): Liveness here depends on the availability of each DVN and the relayer. A message must gather signatures/proofs from the required DVNs and then be relayed to the target chain. The nice aspect is DVNs operate independently – if one DVN (out of a set) is down and it’s not required (only part of an “M of N”), the message can still proceed as long as the threshold is met. LayerZero’s model explicitly allows configuring quorums to tolerate some DVN failures. For example, a “2 of 5” DVN set can handle 3 DVNs being offline without stopping the protocol. Additionally, because anyone can run the final Executor/Relayer role, there isn’t a single point of failure for message delivery – if the primary relayer fails, a user or another party can call the contract with the proofs (this is analogous to the permissionless relayer concept in IBC). Thus, LayerZero v2 strives for censorship-resistance and liveness by not binding the system to one middleman. However, if required DVNs are part of the security stack (say an app requires its own DVN always sign), then that DVN is a liveness dependency: if it goes offline, messages will pause until it comes back or the security policy is changed. In general, proof aggregation can be configured to be robust (with redundant DVNs and any-party relaying) such that it’s unlikely all verifiers are down at once. The trade-off is that contacting multiple DVNs might introduce a bit more latency (e.g. waiting for several signatures) compared to a single faster multisig. But those DVNs could run in parallel, and many DVNs (like an oracle network or a light client) can respond quickly. Therefore, LayerZero can achieve high liveness and low latency, but the exact performance depends on how the DVNs are set up (some might wait for a few block confirmations on source chain, etc., which could add delay for safety).

Cost and Complexity

  • Light Clients (IBC): This approach tends to be complex to implement but cheap to use once set up on compatible chains. The complexity lies in writing a correct light client implementation for each type of blockchain – essentially, you’re encoding the consensus rules of Chain A into a smart contract on Chain B. For Cosmos SDK chains with similar consensus, this was straightforward, but extending IBC beyond Cosmos has required heavy engineering (e.g. building a light client for Polkadot’s GRANDPA finality, or plans for Ethereum light clients with zk proofs). These implementations are non-trivial and must be highly secure. There’s also on-chain storage overhead: the light client needs to store recent validator set or state root info for the other chain. This can increase the state size and proof verification cost on chain. As a result, running IBC on, say, Ethereum mainnet directly (verifying Cosmos headers) would be expensive gas-wise – one reason projects like Polymer are making an Ethereum rollup to host these light clients off mainnet. Within the Cosmos ecosystem, IBC transactions are very efficient (often just a few cents worth of gas) because the light client verification (ed25519 sigs, Merkle proofs) is well-optimized at the protocol level. Using IBC is relatively low cost for users, and relayers just pay normal tx fees on destination chains (they can be incentivized with fees via ICS-29 middleware). In summary, IBC’s cost is front-loaded in development complexity, but once running, it provides a native, fee-efficient transport. The many Cosmos chains connected (100+ zones) share a common implementation, which helps manage complexity by standardization.

  • Multisig Bridges (Hyperlane/Wormhole/etc.): The implementation complexity here is often lower – the core bridging contracts mostly need to verify a set of signatures against stored public keys. This logic is simpler than a full light client. The off-chain validator software does introduce operational complexity (servers that observe chain events, maintain a Merkle tree of messages, coordinate signature collection, etc.), but this is managed by the bridge operators and kept off-chain. On-chain cost: verifying a few signatures (say 2 or 5 ECDSA signatures) is not too expensive, but it’s certainly more gas than a single threshold signature or a hash check. Some bridges use aggregated signature schemes (e.g. BLS) to reduce on-chain cost to 1 signature verification. In general, multisig verification on Ethereum or similar chains is moderately costly (each ECDSA sig check is ~3000 gas). If a bridge requires 10 signatures, that’s ~30k gas just for verification, plus any storage of a new Merkle root, etc. This is usually acceptable given cross-chain transfers are high-value operations, but it can add up. From a developer/user perspective, interacting with a multisig bridge is straightforward: you deposit or call a send function, and the rest is handled off-chain by the validators/relayers, then a proof is submitted. There’s minimal complexity for app developers as they just integrate the bridge’s API/contract. One complexity consideration is adding new chains – every validator must run a node or indexer for each new chain to observe messages, which can be a coordination headache (this was noted as a bottleneck for expansion in some multisig designs). Hyperlane’s answer is permissionless validators (anyone can join for a chain if the ISM includes them), but the application deploying the ISM still has to set up those keys initially. Overall, multisig models are easier to bootstrap across heterogeneous chains (no need for bespoke light client per chain), making them quicker to market, but they incur operational complexity off-chain and moderate on-chain verification costs.

  • Proof Aggregation (LayerZero): The complexity here is in the coordination of many possible verification methods. LayerZero provides a standardized interface (the Endpoint & MessageLib contracts) and expects DVNs to adhere to a certain verification API. From an application’s perspective, using LayerZero is quite simple (just call lzSend and implement lzReceive callbacks), but under the hood, there’s a lot going on. Each DVN may have its own off-chain infrastructure (some DVNs are essentially mini-bridges themselves, like an Axelar network or a Chainlink oracle service). The protocol itself is complex because it must securely aggregate disparate proof types – e.g. one DVN might supply an EVM block proof, another supplies a SNARK, another a signature, etc., and the contract has to verify each in turn. The advantage is that much of this complexity is abstracted away by LayerZero’s framework. The cost depends on how many and what type of proofs are required: verifying a snark might be expensive (on-chain zk proof verification can be hundreds of thousands of gas), whereas verifying a couple of signatures is cheaper. LayerZero lets the app decide how much they want to pay for security per message. There is also a concept of paying DVNs for their work – the message payload includes a fee for DVN services. For instance, an app can attach fees that incentivize DVNs and Executors to process the message promptly. This adds a cost dimension: a more secure configuration (using many DVNs or expensive proofs) will cost more in fees, whereas a simple 1-of-1 DVN (like a single relayer) could be very cheap but less secure. Upgradability and governance are also part of complexity: because apps can change their security stack, there needs to be a governance process or an admin key to do that – which itself is a point of trust/complexity to manage. In summary, proof aggregation via LayerZero is highly flexible but complex under the hood. The cost per message can be optimized by choosing efficient DVNs (e.g. using an ultra-light client that’s optimized, or leveraging an existing oracle network’s economies of scale). Many developers will find the plug-and-play nature (with defaults provided) appealing – e.g. simply use the default DVN set for ease – but that again can lead to suboptimal trust assumptions if not understood.

Upgradability and Governance

  • Light Clients (IBC): IBC connections and clients can be upgraded via on-chain governance proposals on the participant chains (particularly if the light client needs a fix or an update for a hardfork in the source chain). Upgrading the IBC protocol itself (say from IBC 2.0 to 3.0 features) also requires chain governance to adopt new versions of the software. This means IBC has a deliberate upgrade path – changes are slow and require consensus, but that is aligned with its security-first approach. There is no single entity that can flip a switch; governance of each chain must approve changes to clients or parameters. The positive is that this prevents unilateral changes that could introduce vulnerabilities. The negative is less agility – e.g. if a bug is found in a light client, it might take coordinated governance votes across many chains to patch (though there are emergency coordination mechanisms). From a dApp perspective, IBC doesn’t really have an “app-level governance” – it’s infrastructure provided by the chain. Applications just use IBC modules (like token transfer or interchain accounts) and rely on the chain’s security. So the governance and upgrades happen at the blockchain level (Hub and Zone governance). One interesting new IBC feature is custom channels and routing (e.g. hubs like Polymer or Nexus) that can allow switching underlying verification methods without interrupting apps. But by and large, IBC is stable and standardized – upgradability is possible but infrequent, contributing to its reliability.

  • Multisig Bridges (Hyperlane/Wormhole): These systems often have an admin or governance mechanism to upgrade contracts, change validator sets, or modify parameters. For example, adding a new validator to the set or rotating keys might require a multisig of the bridge owner or a DAO vote. Hyperlane being permissionless means any user could deploy their own ISM with a custom validator set, but if using the default, the Hyperlane team or community likely controls updates. Upgradability is a double-edged sword: on one hand, easy to upgrade/improve, on the other, it can be a centralization risk (if a privileged key can upgrade the bridge contracts, that key could theoretically rug the bridge). A well-governed protocol will limit this (e.g. time-lock upgrades, or use a decentralized governance). Hyperlane’s philosophy is modularity – so an app could even route around a failing component by switching ISMs, etc.. This gives developers power to respond to threats (e.g. if one set of validators is suspected to be compromised, an app could switch to a different security model quickly). The governance overhead is that apps need to decide their security model and potentially manage keys for their own validators or pay attention to updates from the Hyperlane core protocol. In summary, multisig-based systems are more upgradeable (the contracts are often upgradable and the committees configurable), which is good for rapid improvement and adding new chains, but it requires trust in the governance process. Many bridge exploits in the past have occurred via compromised upgrade keys or flawed governance, so this area must be treated carefully. On the plus side, adding support for a new chain might be as simple as deploying the contracts and getting validators to run nodes for it – no fundamental protocol change needed.

  • Proof Aggregation (LayerZero): LayerZero touts an immutable transport layer (the endpoint contracts are non-upgradable), but the verification modules (Message Libraries and DVN adapters) are append-only and configurable. In practice, this means the core LayerZero contract on each chain remains fixed (providing a stable interface), while new DVNs or verification options can be added over time without altering the core. Application developers have control over their Security Stack: they can add or remove DVNs, change confirmation block depth, etc. This is a form of upgradability at the app level. For example, if a particular DVN is deprecated or a new, better one emerges (like a faster zk client), the app team can integrate that into their config – future-proofing the dApp. The benefit is evident: apps aren’t stuck with yesterday’s security tech; they can adapt (with appropriate caution) to new developments. However, this raises governance questions: who within the app decides to change the DVN set? Ideally, if the app is decentralized, changes would go through governance or be hardcoded if they want immutability. If a single admin can alter the security stack, that’s a point of trust (they could reduce security requirements in a malicious upgrade). LayerZero’s own guidance encourages setting up robust governance for such changes or even making certain aspects immutable if needed. Another governance aspect is fee management – paying DVNs and relayers could be tuned, and misaligned incentives could impact performance (though by default market forces should adjust the fees). In sum, LayerZero’s model is highly extensible and upgradeable in terms of adding new verification methods (which is great for long-term interoperability), yet the onus is on each application to govern those upgrades responsibly. The base contracts of LayerZero are immutable to ensure the transport layer cannot be rug-pulled or censored, which inspires confidence that the messaging pipeline itself remains intact through upgrades.

To summarize the comparison, the table below highlights key differences:

AspectIBC (Light Clients)Hyperlane (Multisig)LayerZero v2 (Aggregation)
Trust ModelTrust the source chain’s consensus (no extra trust).Trust a committee of bridge validators (e.g. multisig threshold). Slashing can mitigate risk.Trust depends on DVNs chosen. Can emulate light client or multisig, or mix (trust at least one of chosen verifiers).
SecurityHighest – crypto proof of validity via light client. Attacks require compromising source chain or light client.Strong if committee is honest majority, but weaker than light client. Committee collusion or key compromise is primary threat.Potentially very high – can require multiple independent proofs (e.g. zk + multisig + oracle). But configurable security means it’s only as strong as the weakest DVNs chosen.
LivenessVery good as long as at least one relayer is active. Parallel relayers and fast finality chains give near real-time delivery.Good under normal conditions (fast signatures). But dependent on validator uptime. Threshold quorum downtime = halt. Expansion to new chains requires committee support.Very good; multiple DVNs provide redundancy, and any user can relay transactions. Required DVNs can be single points of failure if misconfigured. Latency can be tuned (e.g. wait for confirmations vs. speed).
CostUpfront complexity to implement clients. On-chain verification of consensus (signatures, Merkle proofs) but optimized in Cosmos. Low per-message cost in IBC-native environments; potentially expensive on non-native chains without special solutions.Lower dev complexity for core contracts. On-chain cost scales with number of signatures per message. Off-chain ops cost for validators (nodes on each chain). Possibly higher gas than light client if many sigs, but often manageable.Moderate-to-high complexity. Per-message cost varies: each DVN proof (sig or SNARK) adds verification gas. Apps pay DVN fees for service. Can optimize costs by choosing fewer or cheaper proofs for low-value messages.
UpgradabilityProtocol evolves via chain governance (slow, conservative). Light client updates require coordination, but standardization keeps it stable. Adding new chains requires building/approving new client types.Flexible – validator sets and ISMs can be changed via governance or admin. Easier to integrate new chains quickly. Risk if upgrade keys or governance are compromised. Typically upgradable contracts (needs trust in administrators).Highly modular – new DVNs/verification methods can be added without altering core. Apps can change security config as needed. Core endpoints immutable (no central upgrades), but app-level governance needed for security changes to avoid misuse.

Impact on Composability and Shared Liquidity in DeFi

Cross-chain messaging unlocks powerful new patterns for composability – the ability of DeFi contracts on different chains to interact – and enables shared liquidity – pooling assets across chains as if in one market. The security models discussed above influence how confidently and seamlessly protocols can utilize cross-chain features. Below we explore how each approach supports multi-chain DeFi, with real examples:

  • Omnichain DeFi via LayerZero (Stargate, Radiant, Tapioca): LayerZero’s generic messaging and Omnichain Fungible Token (OFT) standard are designed to break liquidity silos. For instance, Stargate Finance uses LayerZero to implement a unified liquidity pool for native assets bridging – rather than fragmented pools on each chain, Stargate contracts on all chains tap into a common pool, and LayerZero messages handle the lock/release logic across chains. This led to over $800 million monthly volume in Stargate’s bridges, demonstrating significant shared liquidity. By relying on LayerZero’s security (with Stargate presumably using a robust DVN set), users can transfer assets with high confidence in message authenticity. Radiant Capital is another example – a cross-chain lending protocol where users can deposit on one chain and borrow on another. It leverages LayerZero messages to coordinate account state across chains, effectively creating one lending market across multiple networks. Similarly, Tapioca (an omnichain money market) uses LayerZero v2 and even runs its own DVN as a required verifier to secure its messages. These examples show that with flexible security, LayerZero can support complex cross-chain operations like credit checks, collateral moves, and liquidations across chains. The composability comes from LayerZero’s “OApp” standard (Omnichain Application), which lets developers deploy the same contract on many chains and have them coordinate via messaging. A user interacts with any chain’s instance and experiences the application as one unified system. The security model allows fine-tuning: e.g. large transfers or liquidations could require more DVN signatures (for safety), whereas small actions go through faster/cheaper paths. This flexibility ensures neither security nor UX has to be one-size-fits-all. In practice, LayerZero’s model has greatly enhanced shared liquidity, evidenced by dozens of projects adopting OFT for tokens (so a token can exist “omnichain” rather than as separate wrapped assets). For example, stablecoins and governance tokens can use OFT to maintain a single total supply over all chains – avoiding liquidity fragmentation and arbitrage issues that plagued earlier wrapped tokens. Overall, by providing a reliable messaging layer and letting apps control the trust model, LayerZero has catalyzed new multi-chain DeFi designs that treat multiple chains as one ecosystem. The trade-off is that users and projects must understand the trust assumption of each omnichain app (since they can differ). But standards like OFT and widely used default DVNs help make this more uniform.

  • Interchain Accounts and Services in IBC (Cosmos DeFi): In the Cosmos world, IBC has enabled a rich tapestry of cross-chain functionality that goes beyond token transfers. A flagship feature is Interchain Accounts (ICA), which allows a blockchain (or a user on chain A) to control an account on chain B as if it were local. This is done via IBC packets carrying transactions. For example, the Cosmos Hub can use an interchain account on Osmosis to stake or swap tokens on behalf of a user – all initiated from the Hub. A concrete DeFi use-case is Stride’s liquid staking protocol: Stride (a chain) receives tokens like ATOM from users and, using ICA, it remotely stakes those ATOM on the Cosmos Hub and then issues stATOM (liquid staked ATOM) back to users. The entire flow is trustless and automated via IBC – Stride’s module controls an account on the Hub that executes delegate and undelegate transactions, with acknowledgments and timeouts ensuring safety. This demonstrates cross-chain composability: two sovereign chains performing a joint workflow (stake here, mint token there) seamlessly. Another example is Osmosis (a DEX chain) which uses IBC to draw in assets from 95+ connected chains. Users from any zone can swap on Osmosis by sending their tokens via IBC. Thanks to the high security of IBC, Osmosis and others confidently treat IBC tokens as genuine (not needing trusted custodians). This has led Osmosis to become one of the largest interchain DEXes, with daily IBC transfer volume reportedly exceeding that of many bridged systems. Moreover, with Interchain Queries (ICQ) in IBC 3.0, a smart contract on one chain can fetch data (like prices, interest rates, or positions) from another chain in a trust-minimized way. This could enable, for instance, an interchain yield aggregator that queries yield rates on multiple zones and reallocates assets accordingly, all via IBC messages. The key impact of IBC’s light-client model on composability is confidence and neutrality: chains remain sovereign but can interact without fear of a third-party bridge risk. Projects like Composable Finance and Polymer are even extending IBC to non-Cosmos ecosystems (Polkadot, Ethereum) to tap into these capabilities. The result might be a future where any chain that adopts an IBC client standard can plug into a “universal internet of blockchains”. Shared liquidity in Cosmos is already significant – e.g., the Cosmos Hub’s native DEX (Gravity DEX) and others rely on IBC to pool liquidity from various zones. However, a limitation so far is that cosmos DeFi is mostly asynchronous: you initiate on one chain, result happens on another with a slight delay (seconds). This is fine for things like trades and staking, but more complex synchronous composability (like flash loans across chains) remains out of scope due to fundamental latency. Still, the spectrum of cross-chain DeFi enabled by IBC is broad: multi-chain yield farming (move funds where yield is highest), cross-chain governance (one chain voting to execute actions on another via governance packets), and even Interchain Security where a consumer chain leverages the validator set of a provider chain (through IBC validation packets). In summary, IBC’s secure channels have fostered an interchain economy in Cosmos – one where projects can specialize on separate chains yet fluidly work together through trust-minimized messages. The shared liquidity is apparent in things like the flow of assets to Osmosis and the rise of Cosmos-native stablecoins that move across zones freely.

  • Hybrid and Other Multi-Chain Approaches (Hyperlane and beyond): Hyperlane’s vision of permissionless connectivity has led to concepts like Warp Routes for bridging assets and interchain dapps spanning various ecosystems. For example, a Warp Route might allow an ERC-20 token on Ethereum to be teleported to a Solana program, using Hyperlane’s message layer under the hood. One concrete user-facing implementation is Hyperlane’s Nexus bridge, which provides a UI for transferring assets between many chains via Hyperlane’s infrastructure. By using a modular security model, Hyperlane can tailor security per route: a small transfer might go through a simple fast path (just Hyperlane validators signing), whereas a large transfer could require an aggregated ISM (Hyperlane + Wormhole + Axelar all attest). This ensures that high-value liquidity movement is secured by multiple bridges – increasing confidence for, say, moving $10M of an asset cross-chain (it would take compromising multiple networks to steal it) at the cost of higher complexity/fees. In terms of composability, Hyperlane enables what they call “contract interoperability” – a smart contract on chain A can call a function on chain B as if it were local, once messages are delivered. Developers integrate the Hyperlane SDK to dispatch these cross-chain calls easily. An example could be a cross-chain DEX aggregator that lives partly on Ethereum and partly on BNB Chain, using Hyperlane messages to arbitrage between the two. Because Hyperlane supports EVM and non-EVM chains (even early work on CosmWasm and MoveVM integration), it aspires to connect “any chain, any VM”. This broad reach can increase shared liquidity by bridging ecosystems that aren’t otherwise easily connected. However, the actual adoption of Hyperlane in large-scale DeFi is still growing. It does not yet have the volume of Wormhole or LayerZero in bridging, but its permissionless nature has attracted experimentation. For example, some projects have used Hyperlane to quickly connect app-specific rollups to Ethereum, because they could set up their own validator set and not wait for complex light client solutions. As restaking (EigenLayer) grows, Hyperlane might see more uptake by offering Ethereum-grade security to any rollup with relatively low latency. This could accelerate new multi-chain compositions – e.g. an Optimism rollup and a Polygon zk-rollup exchanging messages through Hyperlane AVS, each message backed by slashed ETH if fraudulent. The impact on composability is that even ecosystems without a shared standard (like Ethereum and an arbitrary L2) can get a bridge contract that both sides trust (because it’s economically secured). Over time, this may yield a web of interconnected DeFi apps where composability is “dialed-in” by the developer (choosing which security modules to use for which calls).

In all these cases, the interplay between security model and composability is evident. Projects will only entrust large pools of liquidity to cross-chain systems if the security is rock-solid – hence the push for trust-minimized or economically secured designs. At the same time, the ease of integration (developer experience) and flexibility influence how creative teams can be in leveraging multiple chains. LayerZero and Hyperlane focus on simplicity for devs (just import an SDK and use familiar send/receive calls), whereas IBC, being lower-level, requires more understanding of modules and might be handled by the chain developers rather than application developers. Nonetheless, all three are driving towards a future where users interact with multi-chain dApps without needing to know what chain they’re on – the app seamlessly taps liquidity and functionality from anywhere. For example, a user of a lending app might deposit on Chain A and not even realize the borrow happened from a pool on Chain B – all covered by cross-chain messages and proper validation.

Implementations, Threat Models, and Adoption in Practice

It’s important to assess how these protocols are faring in real-world conditions – their current implementations, known threat vectors, and levels of adoption:

  • LayerZero v2 in Production: LayerZero v1 (with the 2-entity Oracle+Relayer model) gained significant adoption, securing over $50 billion in transfer volume and more than 134 million cross-chain messages as of mid-2024. It’s integrated with 60+ blockchains, primarily EVM chains but also non-EVM like Aptos, and experimental support for Solana is on the horizon. LayerZero v2 was launched in early 2024, introducing DVNs and modular security. Already, major platforms like Radiant Capital, SushiXSwap, Stargate, PancakeSwap, and others have begun migrating or building on v2 to leverage its flexibility. One notable integration is the Flare Network (a Layer1 focused on data), which adopted LayerZero v2 to connect with 75 chains at once. Flare was attracted by the ability to customize security: e.g. using a single fast DVN for low-value messages and requiring multiple DVNs for high-value ones. This shows that in production, applications are indeed using the “mix and match” security approach as a selling point. Security and audits: LayerZero’s contracts are immutable and have been audited (v1 had multiple audits, v2 as well). The main threat in v1 was the Oracle-Relayer collusion – if the two off-chain parties colluded, they could forge a message. In v2, that threat is generalized to DVN collusion. If all DVNs that an app relies on are compromised by one entity, a fake message could slip through. LayerZero’s answer is to encourage app-specific DVNs (so an attacker would have to compromise the app team too) and diversity of verifiers (making collusion harder). Another potential issue is misconfiguration or upgrade misuse – if an app owner maliciously switches to a trivial Security Stack (like 1-of-1 DVN controlled by themselves), they could bypass security to exploit their own users. This is more a governance risk than a protocol bug, and communities need to stay vigilant about how an omnichain app’s security is set (preferably requiring multi-sig or community approval for changes). In terms of adoption, LayerZero has arguably the most usage among messaging protocols in DeFi currently: it powers bridging for Stargate, Circle’s CCTP integration (for USDC transfers), Sushi’s cross-chain swap, many NFT bridges, and countless OFT tokens (projects choosing LayerZero to make their token available on multiple chains). The network effects are strong – as more chains integrate LayerZero endpoints, it becomes easier for new chains to join the “omnichain” network. LayerZero Labs itself runs one DVN and the community (including providers like Google Cloud, Polyhedra for zk proofs, etc.) has launched 15+ DVNs by 2024. No major exploit of LayerZero’s core protocol has occurred to date, which is a positive sign (though some application-level hacks or user errors have happened, as with any tech). The protocol’s design of keeping the transport layer simple (essentially just storing messages and requiring proofs) minimizes on-chain vulnerabilities, shifting most complexity off-chain to DVNs.

  • Hyperlane in Production: Hyperlane (formerly Abacus) is live on numerous chains including Ethereum, multiple L2s (Optimism, Arbitrum, zkSync, etc.), Cosmos chains like Osmosis via a Cosmos-SDK module, and even MoveVM chains (it’s quite broad in support). However, its adoption lags behind incumbents like LayerZero and Wormhole in terms of volume. Hyperlane is often mentioned in the context of being a “sovereign bridge” solution – i.e. a project can deploy Hyperlane to have their own bridge with custom security. For example, some appchain teams have used Hyperlane to connect their chain to Ethereum without relying on a shared bridge. A notable development is the Hyperlane Active Validation Service (AVS) launched in mid-2024, which is one of the first applications of Ethereum restaking. It has validators (many being top EigenLayer operators) restake ETH to secure Hyperlane messages, focusing initially on fast cross-rollup messaging. This is currently securing interoperability between Ethereum L2 rollups with good results – essentially providing near-instant message passing (faster than waiting for optimistic rollup 7-day exits) with economic security tied to Ethereum. In terms of threat model, Hyperlane’s original multisig approach could be attacked if enough validators’ keys are compromised (as with any multisig bridge). Hyperlane has had a past security incident: in August 2022, during an early testnet or launch, there was an exploit where an attacker was able to hijack the deployer key of a Hyperlane token bridge on one chain and mint tokens (around $700k loss). This was not a failure of the multisig itself, but rather operational security around deployment – it highlighted the risks of upgradability and key management. The team reimbursed losses and improved processes. This underscores that governance keys are part of the threat model – securing the admin controls is as important as the validators. With AVS, the threat model shifts to an EigenLayer context: if someone could cause a false slashing or avoid being slashed despite misbehavior, that would be an issue; but EigenLayer’s protocol handles slashing logic on Ethereum, which is robust assuming correct fraud proof submission. Hyperlane’s current adoption is growing in the rollup space and among some app-specific chains. It might not yet handle the multi-billion dollar flows of some competitors, but it is carving a niche where developers want full control and easy extensibility. The modular ISM design means we might see creative security setups: e.g., a DAO could require not just Hyperlane signatures but also a time-lock or a second bridge signature for any admin message, etc. Hyperlane’s permissionless ethos (anyone can run a validator or deploy to a new chain) could prove powerful long-term, but it also means the ecosystem needs to mature (e.g., more third-party validators joining to decentralize the default set; as of 2025 it’s unclear how decentralized the active validator set is in practice). Overall, Hyperlane’s trajectory is one of improving security (with restaking) and ease of use, but it will need to demonstrate resilience and attract major liquidity to gain the same level of community trust as IBC or even LayerZero.

  • IBC 3.0 and Cosmos Interop in Production: IBC has been live since 2021 and is extremely battle-tested within Cosmos. By 2025, it connects 115+ zones (including Cosmos Hub, Osmosis, Juno, Cronos, Axelar, Kujira, etc.) with millions of transactions per month and multi-billion dollar token flows. It has impressively had no major security failures at the protocol level. There has been one notable IBC-related incident: in October 2022, a critical vulnerability in the IBC code (affecting all v2.0 implementations) was discovered that could have allowed an attacker to drain value from many IBC-connected chains. However, it was fixed covertly via coordinated upgrades before it was publicly disclosed, and no exploit occurred. This was a wake-up call that even formally verified protocols can have bugs. Since then, IBC has seen further auditing and hardening. The threat model for IBC mainly concerns chain security: if one connected chain is hostile or gets 51% attacked, it could try to feed invalid data to a counterparty’s light client. Mitigations include using governance to halt or close connections to chains that are insecure (Cosmos Hub governance, for example, can vote to turn off client updates for a particular chain if it’s detected broken). Also, IBC clients often have unbonding period or trusting period alignment – e.g., a Tendermint light client won’t accept a validator set update older than the unbonding period (to prevent long-range attacks). Another possible issue is relayer censorship – if no relayer delivers packets, funds could be stuck in timeouts; but because relaying is permissionless and often incentivized, this is typically transient. With IBC 3.0’s Interchain Queries and new features rolling out, we see adoption in things like Cross-Chain DeX aggregators (e.g., Skip Protocol using ICQ to gather price data across chains) and cross-chain governance (e.g., Cosmos Hub using interchain accounts to manage Neutron, a consumer chain). The adoption beyond Cosmos is also a story: projects like Polymer and Astria (an interop hub for rollups) are effectively bringing IBC to Ethereum rollups via a hub/spoke model, and Polkadot’s parachains have successfully used IBC to connect with Cosmos chains (e.g., Centauri bridge between Cosmos and Polkadot, built by Composable Finance, uses IBC under the hood with a GRANDPA light client on Cosmos side). There’s even an IBC-Solidity implementation in progress by Polymer and DataChain that would allow Ethereum smart contracts to verify IBC packets (using a light client or validity proofs). If these efforts succeed, it could dramatically broaden IBC’s usage beyond Cosmos, bringing its trust-minimized model into direct competition with the more centralized bridges on those chains. In terms of shared liquidity, Cosmos’s biggest limitation was the absence of a native stablecoin or deep liquidity DEX on par with Ethereum’s – that is changing with the rise of Cosmos-native stablecoins (like IST, CMST) and the connection of assets like USDC (Axelar and Gravity bridge brought USDC, and now Circle is launching native USDC on Cosmos via Noble). As liquidity deepens, the combination of high security and seamless IBC transfers could make Cosmos a nexus for multi-chain DeFi trading – indeed, the Blockchain Capital report noted that IBC was already handling more volume than LayerZero or Wormhole by the start of 2024, albeit that’s mostly on the strength of Cosmos-to-Cosmos traffic (which suggests a very active interchain economy). Going forward, IBC’s main challenge and opportunity is expanding to heterogeneous chains without sacrificing its security ethos.

In summary, each protocol is advancing: LayerZero is rapidly integrating with many chains and applications, prioritizing flexibility and developer adoption, and mitigating risks by enabling apps to be part of their own security. Hyperlane is innovating with restaking and modularity, aiming to be the easiest way to connect new chains with configurable security, though it’s still building trust and usage. IBC is the gold standard in trustlessness within its domain, now evolving to be faster (IBC 3.0) and hoping to extend its domain beyond Cosmos, backed by a strong track record. Users and projects are wise to consider the maturity and security incidents of each: IBC has years of stable operation (and huge volume) but limited to certain ecosystems; LayerZero has quickly amassed usage but requires understanding custom security settings; Hyperlane is newer in execution but promising in vision, with careful steps toward economic security.

Conclusion and Outlook: Interoperability Architecture for the Multi-Chain Future

The long-term viability and interoperability of the multi-chain DeFi landscape will likely be shaped by all three security models co-existing and even complementing each other. Each approach has clear strengths, and rather than a one-size-fits-all solution, we may see a stack where the light client model (IBC) provides the highest assurance base for key routes (especially among major chains), while proof-aggregated systems (LayerZero) provide universal connectivity with customizable trust, and multisig models (Hyperlane and others) serve niche needs or bootstrap new ecosystems quickly.

Security vs. Connectivity Trade-off: Light clients like IBC offer the closest thing to a “blockchain internet” – a neutral, standardized transport layer akin to TCP/IP. They ensure that interoperability doesn’t introduce new weaknesses, which is critical for long-term sustainability. However, they require broad agreement on standards and significant engineering per chain, which slows down how fast new connections can form. LayerZero and Hyperlane, on the other hand, prioritize immediate connectivity and flexibility, acknowledging that not every chain will implement the same protocol. They aim to connect “any to any,” even if that means accepting a bit more trust in the interim. Over time, we can expect the gap to narrow: LayerZero can incorporate more trust-minimized DVNs (even IBC itself could be wrapped in a DVN), and Hyperlane can use economic mechanisms to approach the security of native verification. Indeed, the Polymer project envisions that IBC and LayerZero need not be competitors but can be layered – for example, LayerZero could use an IBC light client as one of its DVNs when available. Such cross-pollination is likely as the space matures.

Composability and Unified Liquidity: From a DeFi user’s perspective, the ultimate goal is that liquidity becomes chain-agnostic. We’re already seeing steps: with omnichain tokens (OFTs) you don’t worry which chain your token version is on, and with cross-chain money markets you can borrow on any chain against collateral on another. The architectural choices directly affect user trust in these systems. If a bridge hack occurs (as happened with some multisig bridges historically), it fractures confidence and thus liquidity – users retreat to safer venues or demand risk premiums. Thus, protocols that consistently demonstrate security will underpin the largest pools of liquidity. Cosmos’s interchain security and IBC have shown one path: multiple order-books and AMMs across zones essentially compose into one large market because transfers are trustless and quick. LayerZero’s Stargate showed another: a unified liquidity pool can service many chains’ transfers, but it required users to trust LayerZero’s security assumption (Oracle+Relayer or DVNs). As LayerZero v2 lets each pool set even higher security (e.g. use multiple big-name validator networks to verify every transfer), it’s reducing the trust gap. The long-term viability of multi-chain DeFi likely hinges on interoperability protocols being invisible yet reliable – much like internet users don’t think about TCP/IP, crypto users shouldn’t have to worry about which bridge or messaging system a dApp uses. That will happen when security models are robust enough that failures are exceedingly rare and when there’s some convergence or composability between these interoperability networks.

Interoperability of Interoperability: It’s conceivable that in a few years, we won’t talk about LayerZero vs Hyperlane vs IBC as separate realms, but rather a layered system. For example, an Ethereum rollup could have an IBC connection to a Cosmos hub via Polymer, and that Cosmos hub might have a LayerZero endpoint as well, allowing messages to transit from the rollup into LayerZero’s network through a secure IBC channel. Hyperlane could even function as a fallback or aggregation: an app could require both an IBC proof and a Hyperlane AVS signature for ultimate assurance. This kind of aggregation of security across protocols could address even the most advanced threat models (it’s much harder to simultaneously subvert an IBC light client and an independent restaked multisig, etc.). Such combinations will of course add complexity and cost, so they’d be reserved for high-value contexts.

Governance and Decentralization: Each model puts differing power in the hands of different actors – IBC in the hands of chain governance, LayerZero in the hands of app developers (and indirectly, the DVN operators they choose), and Hyperlane in the hands of the bridge validators and possibly restakers. The long-term interoperable landscape will need to ensure no single party or cartel can dominate cross-chain transactions. This is a risk, for instance, if one protocol becomes ubiquitous but is controlled by a small set of actors; it could become a chokepoint (analogous to centralized internet service providers). The way to mitigate that is by decentralizing the messaging networks themselves (more relayers, more DVNs, more validators – all permissionless to join) and by having alternative paths. On this front, IBC has the advantage of being an open standard with many independent teams, and LayerZero and Hyperlane are both moving to increase third-party participation (e.g. anyone can run a LayerZero DVN or Hyperlane validator). It’s likely that competition and open participation will keep these services honest, much like miners/validators in L1s keep the base layer decentralized. The market will also vote with its feet: if one solution proves insecure or too centralized, developers can migrate to another (especially as bridging standards become more interoperable themselves).

In conclusion, the security architectures of LayerZero v2, Hyperlane, and IBC 3.0 each contribute to making the multi-chain DeFi vision a reality, but with different philosophies. Light clients prioritize trustlessness and neutrality, multisigs prioritize pragmatism and ease of integration, and aggregated approaches prioritize customization and adaptability. The multi-chain DeFi landscape of the future will likely use a combination of these: critical infrastructure and high-value transfers secured by trust-minimized or economically-secured methods, and flexible middleware to connect to the long tail of new chains and apps. With these in place, users will enjoy unified liquidity and cross-chain composability with the same confidence and ease as using a single chain. The path forward is one of convergence – not necessarily of the protocols themselves, but of the outcomes: a world where interoperability is secure, seamless, and standard. Achieving that will require continued rigorous engineering (to avoid exploits), collaborative governance (to set standards like IBC or universal contract interfaces), and perhaps most importantly, an iterative approach to security that blends the best of all worlds: math, economic incentives, and intelligent design. The end-state might truly fulfill the analogy often cited: blockchains interconnected like networks on the internet, with protocols like LayerZero, Hyperlane, and IBC forming the omnichain highway that DeFi will ride on for the foreseeable future.

Sources:

  • LayerZero v2 architecture and DVN security – LayerZero V2 Deep Dive; Flare x LayerZero V2 announcement
  • Hyperlane multisig and modular ISM – Hyperlane Docs: Validators; Tiger Research on Hyperlane; Hyperlane restaking (AVS) announcement
  • IBC 3.0 light clients and features – IBC Protocol Overview; 3Commas Cosmos 2025 (IBC 3.0)
  • Comparison of trust assumptions – Nosleepjohn (Hyperlane) on bridge tradeoffs; IBC vs bridges (Polymer blog)
  • DeFi examples (Stargate, ICA, etc.) – Flare blog on LayerZero (Stargate volume); IBC use cases (Stride liquid staking); LayerZero Medium (OFT and OApp standards); Hyperlane use cases
  • Adoption and stats – Flare x LayerZero (cross-chain messages, volume); Range.org on IBC volume; Blockchain Capital on IBC vs bridges; LayerZero blog (15+ DVNs); IBC testimonials (Osmosis, etc.).