Regulators Race to Control DeFi's $127B Global Takeover

DeFi lending has experienced a notable surge, reaching a total value of $127 billion in 2025, driven by increasing demand for stablecoins and real-world assets (RWAs). This growth is attributed to the expanding use of stablecoins as a mechanism for facilitating cross-border transactions and serving as a bridge between traditional finance and the crypto ecosystem. Stablecoins, which are often backed by liquid assets such as U.S. Treasuries and maintain a stable valuation relative to fiat currencies, have become particularly appealing for their stability and utility in decentralized finance applications [2].

The rise in DeFi lending has been supported by the tokenization of real-world assets, which allows traditional assets like real estate or government bonds to be represented on blockchain platforms. This process enhances liquidity, enables fractional ownership, and opens up new investment opportunities across a global audience. As a result, platforms that facilitate DeFi lending are seeing increased participation from both institutional and retail investors, further solidifying the sector's growth trajectory [2].

Regulatory developments in both the United States and the European Union have also played a role in shaping the DeFi lending landscape. In the U.S., the passage of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act marked a significant step in the legislative framework for stablecoins. This law, signed into effect on July 18, aims to provide a regulatory framework for stablecoins, offering consumer protections and reducing the risks of fraud within the U.S. market [1]. Meanwhile, the European Union has taken a more proactive approach with the Markets in Crypto-Assets (MiCA) Regulation, which came into force on December 30, 2024. The MiCA framework seeks to create a harmonized regulatory environment across EU member states, addressing concerns related to financial stability and investor protection [1].

The expansion of DeFi lending and stablecoin usage raises important questions about financial stability and the future of monetary policy. According to recent reports, the increasing adoption of U.S. dollar-backed stablecoins could lead to dollarization effects, where such stablecoins begin to replace local currencies in certain markets. This shift could reduce the effectiveness of monetary policy in regions with weak financial systems, as central banks may find it harder to control inflation and manage economic cycles. Additionally, the privatization of seigniorage—typically the profit made by governments from issuing currency—poses a risk to national fiscal revenues, especially for countries with limited access to international capital [2].

Moreover, the integration of tokenization and blockchain technology into the financial system could reshape capital flows and financial intermediation. By enabling secure and efficient cross-border transactions, tokenized assets may reduce reliance on traditional correspondent banking systems and messaging platforms like SWIFT. This could lead to faster, cheaper, and more transparent transactions, particularly for remittances and global trade. However, such developments also present regulatory challenges, as the lack of compliance with anti-money laundering and know-your-customer standards could facilitate illicit financial activities and erode trust in the system [2].

The growing influence of DeFi lending and stablecoins also highlights the need for international regulatory coordination. While individual countries and regions are developing their own approaches, there is a growing consensus that a unified framework is necessary to address cross-border risks and ensure financial stability. The European Securities and Markets Authority (ESMA) has already raised concerns about the potential for tokenized stocks to confuse retail investors and drain liquidity from traditional markets, emphasizing the importance of a well-defined regulatory environment [3]. In response, both regulators and industry players are working toward establishing robust standards that balance innovation with risk mitigation.

Source: [1] Crypto Rules in Europe vs. the US: Does Your Stablecoin Strategy Need To Change? (https://www.nasdaq.com/articles/crypto-rules-europe-vs-us-does-your-stablecoin-strategy-need-change) [2] Stablecoins, Tokens, and Global Dominance (https://www.imf.org/en/Publications/fandd/issues/2025/09/stablecoins-tokens-global-dominance-helene-rey) [3] Regulator Voices Concerns That Tokenized Stocks Could Cause Investor Confusion (https://www.paymentsjournal.com/regulator-voices-concerns-that-tokenized-stocks-could-cause-investor-confusion/)