Layer One: Why tokenized assets are DeFi’s biggest unlock

Welcome to Layer One: the newsletter and podcast on the intersection of crypto and the real world. Hosted by Steven Gates and Kelvin Sparks, Layer One brings you inside the conversations driving blockchain forward.

In this week's episode, we were joined by Niklas Kunkel, CEO of Chronicle, and Rhett Shipp, founder of Avant, to discuss tokenization, the challenges of being a Web3 founder and the hurdles in the way of DeFi's next explosive growth spurt.

In this edition of the Layer One newsletter, we're asking whether the DeFi space really is primed for another major leg up in the coming years.

Is DeFi ready to scale by an order of magnitude?

It’s now almost ten years since decentralized lending protocol MakerDAO (now rebranded to Sky) went live, paving the way for the emergence of decentralized finance. By the start of 2020, the category had grown to a modest $500 million in TVL. DeFi summer increased this twentyfold, then just one year later it had grown by almost another 20x, peaking above $190 billion to cap off a meteoric rise.

Now, with the total DeFi TVL retracing back below those prior cycle highs, our guests discussed the catalysts needed for that next explosive growth. Both have been in the DeFi trenches for many years. Kunkel himself was a core contributor to MakerDAO’s DAI stablecoin, while Shipp’s own protocol, Avalanche-based yield platform Avant, sits at almost $150 million in TVL after going live last year.

Both Kunkel and Shipp agreed that the dominoes are already lined up: onchain primitives like lending protocols, perps and stablecoins are mature enough to accommodate a fresh growth spurt. As Kunkel put it: “Products are not the bottleneck right now. It's really everything else.”

The biggest hurdle: liquidity.

Lending and borrowing markets such as Aave have historically been the leading DeFi category. Currently they sit at a combined $52 billion TVL, accounting for almost a third of the total value locked in DeFi. These protocols typically operate using crypto-native collateral such as ETH or BTC, which means that the size of those assets effectively sets a hard cap on their growth potential. One potential solution is in the flood of real-world assets moving onchain.

This tokenization drive among institutions, including Blackrock and Franklin Templeton, saw the total value of onchain RWAs break above $27 billion this month. Wells Fargo is the latest major player to throw their hat in the ring, last week filing a trademark for “WFUSD” with the plan to offer tokenization and crypto trading services. 

Though it may be moving slower than some would have hoped, this wave is providing a solution to decentralized finance’s liquidity constraints. By offering collateral options beyond major cryptoassets, this can potentially expand DeFi’s addressable market into the trillions. However, some questions still remain over whether enough safeguards are in place for major institutions to pursue deeper integration with DeFi.

Last week, crypto Twitter was abuzz with the news that an anonymous Aave user had lost $50 million after putting in a high-volume swap order on an illiquid trading pair: a massive 99.9% price impact slashed their position down to just $36,000. Then this week, BNB Chain lending app Venus Protocol was left with $2 million in bad debt after an attacker manipulated an illiquid collateral token’s price to take out inflated loans.

Although such exploits and mishaps are still a fairly common occurrence, DeFi is arguably far past its Wild West phase. According to a report from Chainalysis, the total funds lost to hacks and exploits came in at $3.41 billion in 2025. This was down from the reported 2022 peak of almost $4 billion (despite an overall growth in DeFi TVL).

So the rails are built, and the safeguards are undeniably improving overall. Now it’s a matter of time before deeper institutional liquidity tests just how far DeFi can scale.

Podcast Recap: Why tokenized assets are DeFi’s biggest unlock

In the Headlines: The stories driving the conversation this week

• A coalition of DeFi firms has called for decentralized finance to be integrated into university curriculums in the United States. Spearheaded by onchain DEX aggregator 1inch, the campaign is targeting top law and business schools to prepare graduates for a world in which decentralized and traditional finance continue to converge. The group plans to run a campus tour to support the initiative. 
• The SEC has approved a pilot program allowing the Nasdaq to settle trades with tokenized shares. In recent years, industry figures have widely accepted the value of tokenization in reducing settlement times, costs and other friction points inherent in current trading systems. This comes as the agency mulls a revised innovation exemption for tokenized securities, allowing “targeted experimentation” with relaxed regulatory restrictions.
• Ava Labs has signed a strategic partnership with Web3 powerhouse Animoca Brands. The aim of the deal is to “accelerate growth in the Avalanche ecosystem.” The Hong Kong-based firm has played a major role in expanding Web3 adoption in Asia, particularly in gaming and digital ownership. Its VC arm, Animoca Ventures, has also backed some of the most well-known blockchains and DeFi protocols.

Top of the Charts: Avant Protocol topped $150 million TVL in its first year of operations

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Layer One is brought to you in collaboration with Avalanche.