Crypto Update | Why 2025 Could Be a Breakout Year for DeFi Adoption

Summary

Markets Daily Crypto Roundup Summary

Episode: Crypto Update | Why 2025 Could Be a Breakout Year for DeFi Adoption
Release Date: January 14, 2025
Host: Jen Senasi
Guest: Syd Powell, CEO and Co-Founder of Maple

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1. Market Overview

The episode begins with Jen Senasi welcoming Syd Powell to discuss the current state of the crypto markets. Powell provides an analysis of recent market movements, highlighting the volatility and underlying strengths within the Bitcoin (BTC) market.

• Market Fluctuations:
  Powell notes, “Yesterday we saw markets, we saw BTC dip below 90 overnight. It's since rebounded to 96. This suggests some strength and a bit of shakeout of weakness” (01:26).

• Institutional Support:
  He emphasizes the role of institutional buying, mentioning that over 5,000 BTC were purchased by corporate buyers in the early weeks of the year, indicating strong institutional interest supporting Bitcoin's price.

2. Institutional Interest in Crypto

Jen probes into the behavior of institutional buyers, especially in light of the upcoming U.S. inauguration and a potentially more crypto-friendly administration.

• Positive Regulatory Environment:
  Powell responds positively, stating, “All signs point to a more positive regulatory environment” (02:23). He anticipates increased institutional participation bolstered by the approval of Bitcoin ETFs and the likelihood of more ETFs entering the market throughout the year.

• Expansion of ETF Offerings:
  He anticipates the launch of new ETFs, including potential offerings for SOL or XRP, and even DeFi tokens. Powell suggests that Grayscale's proposal to include more DeFi tokens in an ETF could be a pivotal development (03:24).

3. Institutional Understanding and Adoption of DeFi

The conversation shifts to institutional perspectives on decentralized finance (DeFi), exploring whether their understanding and interest have evolved.

• Enhanced Institutional Knowledge:
  Powell observes, “Institutional knowledge of DeFi has come a long way” (04:32). He highlights ongoing discussions between large asset managers and DeFi protocols, indicating a deeper comprehension and interest in DeFi products.

• Regulatory Advancements:
  Recent judicial rulings requiring the SEC to clarify what constitutes a security in the crypto space are expected to positively influence DeFi's growth, fostering a more favorable regulatory landscape (04:32).

4. Use Cases Driving Institutional Interest in DeFi

Jen inquires about the specific reasons institutions are gravitating towards DeFi.

• Client Demand for Advanced Financial Products:
  Powell explains that traditional asset managers seek services like loans against Bitcoin holdings, which DeFi platforms can provide. This demand for enhanced utility drives institutional interest (05:50).

• Attractive Valuations:
  The potential for high valuations in DeFi projects, as seen with Ondo's valuation exceeding $11 billion, presents significant opportunities for institutions looking to invest in promising DeFi ventures (05:50).

5. Regulatory Outlook for DeFi in the U.S.

The discussion advances to the impact of upcoming regulations on DeFi, particularly in comparison to Europe's MICA regulation.

• Key Regulatory Catalysts:
  Powell identifies three main regulatory catalysts for DeFi:

  1. Token Issuance Regulations: Clarifying what makes a token a security.
  2. Fee Switch Capabilities: Allowing DeFi projects to turn on fee switches, which could unlock revenue streams.
  3. Retail Access: Enabling DeFi products to be available to retail investors, significantly expanding the market.

  He asserts, “If you could offer them to retail users within the US, you just have a much larger market for DeFi to access” (07:16).

• Optimistic but Cautious Outlook:
  While Powell is hopeful about these regulatory advancements, he remains cautious, stating, “If we could get even one of those three things, it would be great for the market” (08:38).

6. Macroeconomic Factors Affecting Crypto Markets

Jen shifts the focus to broader economic indicators, such as U.S. jobs data and interest rate projections from Goldman Sachs.

• Impact of Strong Jobs Data:
  Powell discusses the implications of robust job growth and wage increases, which signal potential inflation. While inflation could boost assets like Bitcoin, the anticipation of delayed or reduced interest rate cuts may dampen risk appetite among investors (09:22).

• Bitcoin Price Prediction:
  Despite mixed economic signals, Powell maintains his bullish outlook on Bitcoin, forecasting a 100% price increase in 2025. He attributes this to sustained institutional investments and increasing corporate adoption of Bitcoin (10:42).

7. Stablecoin Compliance and Market Dynamics

A significant portion of the discussion revolves around stablecoin compliance, particularly focusing on USDT's non-compliance with the MICA regulation.

• USDT's Compliance Issues:
  Powell explains that USDT failed to comply with MICA regulations by the cutoff date, leading European exchanges to shift trading pairs from USDT to USDC. However, he downplays the long-term impact, noting that USDT remains dominant in Asian markets, which constitute about 80% of its trading volume (13:00).

• Market Implications:
  The shift benefits USDC and platforms like Coinbase and Circle, which are likely to gain increased market share in regions adhering to MICA. Powell adds, “I do think it is a big win for Coinbase and Circle” (13:00).

8. Future Outlook and Key Trends for DeFi in 2025

Concluding the conversation, Jen asks Powell to identify key trends and developments to watch in the DeFi space for the rest of 2025.

• Stablecoin Supply and Regulatory Tailwinds:
  Powell advises monitoring the circulating supply of stablecoins and any regulatory guidance that may benefit DeFi, such as clarity on fee switches and broader access (14:55).

• Resurgence and Performance of DeFi:
  He predicts a resurgence in DeFi's performance, driven by the ability to implement fee switches and renewed innovation within the sector. Powell is optimistic, stating that DeFi could become the best-performing sector within crypto for the year (15:42).

9. Final Thoughts

Syd Powell concludes by reiterating the importance of traditional financial institutions adopting crypto products and the resultant boost to DeFi usage. He underscores that these underlying trends are crucial for the sustained growth and adoption of crypto and DeFi, beyond the daily fluctuations of major assets like Bitcoin (11:43).

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Notable Quotes:

• "Institutional knowledge of DeFi has come a long way." — Syd Powell (04:32)

• "If you could offer them to retail users within the US, you just have a much larger market for DeFi to access." — Syd Powell (07:16)

• "The rate at which crypto products get adopted by these neobanks or traditional finance institutions is really going to push things forward." — Syd Powell (11:43)

• "I still think that long-term prospects are good and I could see that 100% increase over the course of this year." — Syd Powell (10:42)

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This episode of Markets Daily Crypto Roundup provides a comprehensive overview of the current crypto market landscape, emphasizing the pivotal role of institutional investments, evolving regulatory frameworks, and the promising future of DeFi. Syd Powell's insights offer valuable perspectives for investors and enthusiasts aiming to navigate the complexities of the crypto world in 2025.

Transcript

[Syd Powell]

A big watershed moment for the industry was when Stripe bought Bridge and we've seen PayPal enter the stablecoin market. We've seen Ripple now get approved for a stablecoin. Visa is talking about a lot. I think the rate at which crypto products get adopted by these neobanks or traditional finance institutions is really going to push things forward and the secondary effect of that is going to be much more use of things like defi products.

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[Jen Senasi]

Hello and welcome to Markets Daily, hosted by me, Jen Senasi. On this show we navigate the currents shaping the crypto markets, providing insights against the broader financial landscape. So we, whether you're actively trading or simply fascinated by the volatility that is the crypto markets, this show is your compass to understanding what's happened, where we are and where we're going. On today's show, I'm joined by CEO and co founder of Maple, Syd Powell. Sid, welcome.

[Syd Powell]

Hey Jen, thanks for having me.

[Jen Senasi]

Of course. Thanks for being here. Now markets are back in the green this morning, but still a far cry from where we were early December. Talk to me about what you're watching and, and maybe even help me make sense of some of the movement we've seen lately.

[Syd Powell]

Yeah, for sure. I mean, yesterday we saw markets, we saw BTC dip below 90 overnight. It's since rebounded to 96. This suggests some strength and a bit of shakeout of weakness. There were certainly some liquidations and margin calls that were seen across the market. We're a lending business, so we've seen some of the margin calls occurring. But I think folks are keeping an eye on the institutional buying that's supporting bitcoin at the moment. I do think we saw elevated numbers there, you know, suggesting over 5,000 Bitcoin were bought by corporate buyers in the first couple of weeks of this year.

[Jen Senasi]

Talk to me a little bit more about institutional buyers. How do you expect them to act over the course of the year? I know we are heading closer and closer towards inauguration Day. We are hopefully going to get a more crypto friendly administration here in the United States. How do you see institutional buyers reacting to that?

[Syd Powell]

I think positively overall. I mean, like everyone, we're keeping an eye on the inauguration. It's, you know, we're less than a week out now and all signs, you know, point to a more positive regulatory environment. We also have just seen that institutional buyers now have more access to Bitcoin products through the ETFs that were approved last year. And there's every suggestion that we'll see more ETFs coming to market over the course of this year. So I think you can expect to see increased institutional participation, both across more large cap assets as well as just more inflows into the BTC ETFs. Historically, we've always seen that years two and three see elevated inflows into ETFs. You know, just looking at the gold ETF, for example.

[Jen Senasi]

Now you mentioned that we might see more ETFs this year. We, of course, have the Bitcoin and Ether ETF in the United States. Do you have your sights set on any other ETFs being launched in 2025, like maybe a sole ETF or something else?

[Syd Powell]

I think I would expect to see a sole ETF or an XRP etf. Interestingly, on the lending side of our business, we've actually seen more increased demand to borrow against xrp, which suggests that institutions are holding it on their balance sheets. And a dark horse on the ETF side would be more defi tokens. I think defi is expected to benefit from the change in regulatory regime. And we have seen Grayscale put out a proposal to include more defi tokens in an ETF product. So I think that would be the dark horse, but otherwise my money would be on SOL or xrp.

[Jen Senasi]

You sit in an interesting seat. I think, to answer this question, when it comes to institutional interest in defi, before the Bitcoin ETF was approved, there was like a lot of chatter. You know, do institutions really understand bitcoin? You know, they're now starting to get their toes wet a little bit. And so now going to a DeFi ETF, like you said, sounds like a dark horse. Sounds like a little bit of a far stretch. Talk to me about how institutions are looking at defi and has their education just escalated exponentially since the approval of the Bitcoin etf?

[Syd Powell]

I think so. I mean, in short, they certainly understand defi a lot better than they did this time last year. We've seen that most of the large defi projects are behind the scenes in conversations with some of these traditional finance players or asset managers. I think Athena published a roadmap the other week in which they alluded to a fund wrapper for their product based on conversations with some of the large asset managers. You know, we, as a DEFI protocol ourselves have been in conversations with a number of the large bulge bracket US Banks as well as the asset managers who have either dipped their toes into ETF products or custody options for their clients. So institutional knowledge of DEFI has come up a long way. And I think people also expect that regulatory treatment will be a lot more favorable this year. Even just last week we saw a judge rule that the SEC needed to provide an explanation as to why they did not provide rules around what tokens would be considered securities or what crypto products would be considered securities. So I think that would be a tremendous boost forward for the industry.

[Jen Senasi]

Talk to me a little bit about some of those use cases. Why are institutions interested in DeFi? Is it coming purely from demand from some of their customers?

[Syd Powell]

I think it comes from demand from their customers for increased utility in their financial products. Our angle of conversation is typically that clients of some of these large asset managers who hold Bitcoin might want to borrow against it, but that asset manager can't provide that service. So they then loop into the conversation folks like us who could offer their clients loans against that Bitcoin, provided they keep it in custody with them. So I think that's one angle is there's just certain products they can't yet provide to their clients and so they look to defy for this. And I think the other thing is just attractive valuations. You know, if you look circles projected to IPO at somewhere around 5 or high, single digit billions, you look at Ondo, which has a comparable product, and this is valued at north of $11 billion, fully diluted. So I think some of these institutions, from background conversations I've had, are very interested in the valuations applied to these defi products and view that as a big opportunity for themselves.

[Jen Senasi]

We started talking a little bit about regulatory outlook there. I want to talk to you about how you expect DEFI to come into the regulatory conversation here in the United States. We do have a little bit of a further way to go than some jurisdictions like Europe, whose Nika regulation came into effect in December. But what kind of role do you see DEFI playing as we get more clear regulatory frameworks in the United States?

[Syd Powell]

Well, we can come to Nika a little bit later, but I think it's important not to assign too much value to getting to market first. With regulation, I think guidance is great. Even guidance would be a step forward from what we have today in the U.S. but the problem with imposing too strict regulation upfront is you can just crimp the innovation or the entrepreneurs in your Market, which I think we have seen costs increase in Europe as a result of mica. But what I would say is that the three big catalysts for DEFI in terms of regulation would be one, the ability to issue tokens. So or even just guidance on what makes a token a security or not. Two would be the ability to turn on fee switches for tokens. I think that would be a huge unlock. We've seen governance proposals over the last 12 months for uni Swap for Athena. This is something that everyone pays attention to. And the third and final one would just be offering DEFI products to retail in the US even if in some limited form. There is many, many DEFI product products that are only available to accredited investors in the US and this just shrinks your market significantly. So I think if you could, if you could offer them to retail users within the US you just have a much larger market for DEFI to access. So those are the three things I keep a lookout for.

[Jen Senasi]

Do you think we're going to get those three things in 2025?

[Syd Powell]

I think if we could get even one of those three things it would be great for the market. So I'm not holding my breath for all three.

[Jen Senasi]

Yeah, I mean our incoming president has done some playing in the defi world.

[Syd Powell]

He has definitely dabbled.

[Jen Senasi]

Yeah. So we'll see how that progresses. But I want to zoom out a little bit now here and look at things from a macro level. Some pretty robust jobs data came in recently in the United States and now Goldman Sachs is pushing out the next interest rate cut from March to June, saying that they expect now that we're going to have two cuts next year instead of three. Talk to me about making sense of this data. How do you think it's going to impact risk assets as we move further into the year?

[Syd Powell]

I think it's, it's a bit of a double edged sword. So the jobs report that was posted showed a couple of important points. 250k jobs added in December versus an expectation of 160, so stronger than expected. And then 4% wage growth year on year. So I think those two point to signs of potential inflation. So folks may get concerned about that. You know, it can potentially be positive for Bitcoin and other financial assets because inflation tends to push those up. However, the tempering factor is that as you pointed out, folks will now expect that a rates cut is going to be pushed further into the future or be reduced in size. And this is generally going to be bad for risk on or growth assets, which crypto Definitely falls into, falls into that bucket for most investors. So I think that will temper people's enthusiasm around how much price appreciation we could see over the next couple of months. But it's also important to note that the positive jobs number does point to resilience in the US economy. So I think that that is an underlying positive for people to take away from the report.

[Jen Senasi]

You made a prediction, albeit you made this prediction before this jobs data came out, that bitcoin could see 100% increase over the course of 2025. Do you still think that given this data?

[Syd Powell]

I do still think that. I think that whilst we might see tempered monetary policy from the Fed, that we are still in the early innings of a bull cycle. And the tailwind for bitcoin is of course the inflows into the BTC ETF which will drive buying pressure for it. We've also seen corporate balance sheets start to put more bitcoin on there and even some proposals for large companies like Amazon or Microsoft to add bitcoin to their balance sheet. So all that suggests that there is going to be an increase in demand for bitcoin over the course of this year. So I do still think that long term prospects are good and I could see that 100% increase over the course of this year.

[Jen Senasi]

So are you saying more corporate interest, more institutional interest is what would drive the price higher?

[Syd Powell]

Yes, that's right.

[Jen Senasi]

I always like to get into the brains of the guests who come on this show and I would love to hear what's top of your mind, what keeps you up at night when you're looking at the markets.

[Syd Powell]

I think people are not factoring in how fast traditional finance and neo banks are starting to adopt crypto products. I look at, I think a big watershed moment for the industry was when Stripe bought Bridge and we've seen PayPal into the stablecoin market. We've seen Ripple now get approved for a stablecoin. Visa is talking about a lot. I think the rate at which crypto products get adopted by these neobanks or traditional finance institutions is really going to push things forward and the secondary effect of that is going to be much more use of things like Defi products. So I just don't think that's appreciated enough by folks who are watching the market because everybody of course focuses on the major headline which, which is bitcoin price. But I think the, those underlying trends of adoption are kind of underappreciated by people.

[Jen Senasi]

I want to talk about a specific stablecoin and come back to Mica regulations, which we were talking about earlier on in the show. The regulations came into effect in December. One of the bigger stories that came out of that was USDT not being compliant. Talk to me about what this means for platforms like yours, what it means for stablecoin adoption and what it means for usdt.

[Syd Powell]

Yeah, it, so what, what, what happened was that USDT was, was not compliant with MICA at the point of cutover at the end of December. And so the exchanges have stopped, the exchanges in Europe have stopped offering trading pairs in USDT to Bitcoin and other large cap assets instead that shifting to usdc. So good win for usdc, for Circle and Coinbase on that front. But what does it mean for people? I think Tether still has a really significant network effect, which is mostly in Asia. So if you look at most of Tether's trading volume, it occurs In Asia, about 80% of it is in Asia. So I don't think this has really dented that network effect. The hit to Tether's market cap was really only about 3 billion of close to 140 billion. What does it mean for businesses like us? We do lending in USDC and in USDT to institutional borrowers, but the vast majority of our lending is in USDC because that client base tends to be either US or more developed markets rather than emerging markets. So I just don't see it being as significant as what people initially made out and I don't see it really denting Tether's network effect. I do think it is a big win for Coinbase and Circle. I think Coinbase has continued to rack up wins for this year, so they're going to be happy with the result and they're going to try and push for more of that market share and try and use that as a springboard to get more USDC trading pairs on some of the Asian exchanges.

[Jen Senasi]

All right, we've talked about stablecoins, we've talked a little bit about Defi lending, we've talked about regulation in the US and Europe. If you were to look into your crystal ball as we head deeper into 2025, there was one thing to watch and let's stick to Defi, since that's where your expertise lies. What should we be watching when it comes to Defi as we head deeper into the year?

[Syd Powell]

So I think watch for. So I think stablecoins are going to help Defi because Defi is ultimately powered by stablecoins. So I think keep an eye out for a stablecoin circulating supply and then look out for some of that, some of those regulatory tailwinds. So guidance on what Defi products can do and whether they could turn on the fee switch. I think that is a big prediction that when I talk to a lot of VCs, they all talk about the possibility of Defi protocols being able to turn on fee switches as they hit profitability. So that's one thing I look at. We actually just put out a proposal ourselves and I can see that Uniswap and Athena have done so recently as well. So I look at that as a big resurgence for Defi. I think it's going to be the best performing sector within crypto over the course of this year.

[Jen Senasi]

Sid, thanks so much for joining Markets Daily Today.

[Syd Powell]

Thanks for having me, Jen.

[Jen Senasi]

And thank you to our audience who watch the Markets Daily every day. If you prefer listening to the show, subscribe to the Coindesk Podcast network that is available on all podcast platforms. If you prefer watching, we are on YouTube, subscribe, give us a thumbs up. As always, it's been a pleasure and we will see you tomorrow.