From a geek's toy to Wall Street's new darling, how DeFi is changing the financial landscape

In the past few years, decentralized finance ( DeFi ) has become a hot topic in the financial circle. From the initial "toys" built by geeks on Ethereum to the emerging field that now attracts the attention of traditional financial giants on Wall Street, DeFi has undergone an astonishing transformation.

Looking back at the period from 2020 to 2021, the DeFi market experienced explosive growth. The total locked value ( TVL ) skyrocketed from over a billion dollars to a peak of 178 billion dollars. Some uniquely named protocols such as a certain DEX and a certain lending platform instantly became star projects in the global crypto space.

However, for most ordinary investors, DeFi remains a challenging field. Complex wallet operations, obscure smart contracts, and frequent hacking incidents have deterred many. Data shows that even during the peak of DeFi, the proportion of traditional financial institutions that actually entered the market was less than 5%. Although investors are interested, they have yet to take action due to various barriers.

Against this backdrop, a new tool has emerged - Decentralized ETF ( DeETF ). It combines the advantages of traditional ETFs and blockchain technology, retaining the convenience and regulatory compliance of traditional funds while also accommodating the high growth potential of DeFi assets. DeETF serves as a bridge, connecting the high-threshold new land of DeFi on one end and a wide range of investors familiar with traditional financial products on the other.

The development history of DeETF can be roughly divided into the following stages:

Early Exploration (2017-2019)

This stage is mainly led by pioneering projects on Ethereum, such as a certain stablecoin project and a certain lending platform. Although the ecological scale is limited, the innovative decentralized finance model has attracted attention in the geek community. By the end of 2019, the TVL of DeFi was close to 600 million USD. At the same time, some astute traditional financial institutions also began to pay attention to blockchain technology, but were unable to truly participate due to the complexity of the technology.

Market Explosion and Concept Formation ( 2020-2021 )

The outbreak of the pandemic in 2020 drove a massive influx of funds into the cryptocurrency market, leading to explosive growth in Decentralized Finance. TVL surged from $1 billion to $178 billion. Emerging models such as liquidity mining and yield farming have emerged one after another, but at the same time, they have also exposed a huge barrier to user participation.

In this context, some traditional financial companies have seized the opportunity. For example, a Canadian listed company has decisively transformed and launched financial products that track mainstream Decentralized Finance protocols, allowing users to participate in DeFi as easily as buying and selling stocks. This marks the official emergence of the "DeETF" concept. At the same time, decentralized platforms are also beginning to experiment with managing ETF portfolios using smart contracts.

Market Reshuffling and Maturity ( 2022-2023)

A series of black swan events at the beginning of 2022 nearly destroyed investor confidence, with the DeFi market's TVL dropping from $178 billion to $40 billion. However, the crisis also created opportunities, driving the further development and maturation of DeETF. Two main models are gradually taking shape:

1. Strengthening traditional financial channels: Institutions are expanding product lines, launching more robust ETPs and listing them on traditional exchanges.

2. The rise of on-chain decentralized models: Some platforms directly implement asset management and portfolio trading through smart contracts, without the need for centralized custody.

The parallel development of these two models is gradually clarifying the DeETF track.

Advantages and Challenges of DeETF

DeETF demonstrates the following advantages:

• Strong usability, greatly reducing participation barriers
• More transparent and flexible investment
• Helps with risk control and investment diversification

But it also faces challenges:

• The regulatory environment is uncertain.
• Smart Contract Security Risks

Despite these challenges, DeETF is still regarded as one of the important innovations in future financial markets. It blurs the lines between traditional investments and the crypto market, making asset management more democratized and intelligent.

Emerging projects rise, the DeETF track blooms in full

From a Single Model to Diverse Exploration

After 2023, DeETF enters the "hundred flowers bloom" stage, evolving along two paths:

1. Traditional financial path: Issue ETPs through formal exchanges to enrich Decentralized Finance asset categories.

2. Pure on-chain decentralized platform: Users only need a crypto wallet to autonomously create, trade, and manage asset portfolios.

In the direction of on-chain native asset portfolios, some platforms have become pioneering explorers. For example, a certain platform supports multi-theme combination strategies, providing users with an "one-click buy + traceable" ETF product experience.

In terms of institutional pathways, in addition to traditional financial companies, some leading RWA players are also tokenizing traditional financial assets in a compliant manner and introducing primary market investors.

These platforms propose the concept of "24/7 round-the-clock trading, no intermediaries, user-controlled combinations", breaking the limitations of traditional ETFs. Data shows that by the end of 2024, the number of active on-chain ETF combinations on a certain platform has exceeded 1200, with a total locked value reaching tens of millions of dollars.

New Trends in Smart Asset Portfolios

The DeETF track has evolved from "free combination" to "preset combination one-click purchase." However, there are still few projects that truly hand over the "combination strategy" to be processed automatically by algorithms.

A certain emerging project attempts to make DeETF more "intelligent". It has built an AI-driven asset allocation recommendation system. Users only need to input their requirements, and the system will automatically generate recommended portfolios based on on-chain data. This concept is similar to smart investment advisory services in traditional finance, but it has been moved on-chain and completes asset management logic at the contract level.

The project chooses to operate on a high-performance public chain, significantly reducing usage costs. In terms of combination security, the smart contract supports full on-chain transparency, avoiding "black box configuration." It emphasizes the experience of "self-service deployment + AI combination recommendation," which addresses the pain point of "not knowing how to invest" while retaining asset control.

This type of product path may represent the direction of the DeETF platform from "structured tools" to "intelligent investment research assistants."

The Fork Evolution of the DeETF Track

As user demand shifts from trading-focused to portfolio management, the DeETF track is gradually diversifying into several development paths:

• Emphasize user autonomy in configuration and free combination
• Launch on-chain thematic ETF products
• Focus on standard index products
• Compliance exploration aimed at retail and institutional investors

From the perspective of user interaction, the entire sector is beginning to shift towards a smarter, more automated asset allocation experience. Some platforms are attempting to introduce AI models or rule engines to dynamically generate allocation suggestions based on user goals and on-chain data.

These different paths, although still in the early stages, show that more and more DeETF platforms are transitioning from "pure tools" to "strategy providers", reflecting that the crypto asset management sector is evolving towards simplification and the removal of professional barriers.

Conclusion: DeETF Reshaping the Future of On-Chain Asset Management

Looking back at the development of DeFi, we can see a clear main line: from the initial experiments with smart contracts, to the construction of open trading and lending protocols, and then to the triggering of large-scale capital flows, DeFi has completed decades of traditional finance processes in just a few years. Today, DeETF, as the "upgraded version of the user experience" for DeFi, is further lowering the barriers and promoting popularization.

According to the data, the DeFi market is expected to grow from $32.36 billion in 2025 to approximately $1.558 trillion in 2034, with a compound annual growth rate of 53.8%. This means that in the next 5 years, DeETF is likely to become one of the most important application scenarios for on-chain asset management.

Currently, we have seen different types of explorers: there are companies entering from traditional finance, issuing more compliant crypto ETP products; there are platforms insisting on on-chain autonomy, emphasizing free combination and complete transparency; and there are emerging forces introducing AI-assisted portfolio construction, attempting to make on-chain asset management truly "intelligent and personalized."

If early DeFi solved the question of "Can finance be decentralized?", today's DeETF is addressing the issue of "How can decentralized finance be made affordable and usable for more people?" In the future, on-chain asset management should become a capability that any ordinary investor can master.

From the initial decentralized projects to today's smart DeETF platform, every advancement is a refresh of the ideals of financial freedom, transparency, and inclusiveness. DeETF is redefining the on-chain asset management approach, injecting new imagination into this field. This story is far from over, but the future is slowly taking shape.