Bitcoin (BTC) stole the spotlight in 2024, but according to Kaiko Research, the Trump administration’s changing regulations could lead to a rotation into other assets. The decentralized finance (DeFi) sector, in particular, is showing promise, as stated in a report by Kaiko research analysts Adam McCarthy and Dessislava Aubert.
Kaiko’s DeFi index (KSDEFI) has outperformed Ethereum (ETH) since its launch in October 2023, delivering approximately 75% returns during that period. This is noteworthy considering that most of the protocols included in the index are built on Ethereum.
The report suggests that this outperformance may continue in the latter half of 2025, as several assets within the index benefit from strong tailwinds. It highlights the decreasing correlation between the DeFi index and ETH over time, indicating the expansion of the decentralized finance sector beyond the Ethereum ecosystem.
The index comprises 11 DeFi tokens, with UNI, AAVE, and ONDO being the most heavily weighted. The report identifies at least four of these tokens as having powerful tailwinds for the rest of the year.
For instance, regulatory developments in the U.S. could enable decentralized exchange Uniswap and decentralized lender Aave to implement fee switches for their tokens. This means that protocol fees may be distributed to UNI and AAVE holders.
Additionally, the tokenization protocol Ondo Finance is expected to benefit from the growing trend of tokenization as Wall Street becomes more involved in the crypto space.
The report acknowledges that regulatory constraints and structural issues have posed challenges for DeFi in the past. However, with regulatory scrutiny easing and abundant growth opportunities emerging, the sector is poised for expansion.
Overall, while Bitcoin has dominated the crypto market, the changing regulatory landscape and the potential for a rotation into other assets, particularly in the DeFi sector, indicate a shifting dynamic in the cryptocurrency space.
