The US challenger’s plan to mix decentralized finance with traditional banking in a “hybrid finance” approach could shore up its appeal to younger users.

DeFi industry must do more self-policing until regulation arrives: Theft from DeFi platforms increased 1,330% in 2021—and the SEC is looking at pseudonymity and opacity as major problems to solve.

The quieter Thanksgiving weekend news cycle gave us time to dive deep on a much-hyped fintech sector. Here’s how DeFi actually works, what issues it aims to solve, and where it’s going next.

For DeFi, globally consistent regulatory frameworks as well as encouragement of self-policing and governance through industry codes and self-regulatory organizations, as in the traditional securities market.

DeFi may face its first major hurdle imposed by the SEC. Several crypto exchanges have attempted to launch DeFi products, like BlockFi’s and Coinbase’s savings accounts, which let users lend their crypto assets on a blockchain in return for interest. But state regulators struck these down, calling them unlicensed securities.

Its net revenue fell to $1.24B in Q3—but it plans to reduce its reliance on trading by offering users access to Dapps, DeFi, and NFTs.

eToro launched a DeFi portfolio to give retail investors exposure to the new asset class as the industry matures and more players look to get in on the action.

But reality will be far from a DeFi utopia. Metaverses will depend on legacy payments rails, platform-specific tokens, and banking as a service (BaaS) embedded into metaverse platforms. Incumbents’ entrenchment makes them central to virtual commerce. Payments service providers’ control over payment rails makes them integral to moving money in or out of a metaverse for the foreseeable future.

Here’s how it works: The Ethereum infrastructure builder aims to make it easier for users to access the emerging blockchain-based ecosystem, like DeFi services, NFT marketplaces, and the metaverse. ConsenSys’ crypto wallet MetaMask reaches over 30 million monthly active users, letting users mint and collect NFTs and take part in DeFi protocols.

But we also see DeFi facing increased regulatory scrutiny: The SEC has made clear that it intends to rein in lending and DeFi platforms. This could send overambitious crypto startups back to the drawing board.

Backers will also diversify their investing into crypto infrastructure and blockchain startups with the potential to innovate financial services, such as DeFi firms. Even in a volatile market rocked by the Russia-Ukraine war, Bain Capital Ventures’ new fund highlights that investment can thrive when strong investor interest shows no sign of abating.

Square announced a platform to help developers create DeFi applications in a bid to recreate its crypto revenue success with DeFi.

For example, eToro added a decentralized finance (DeFi) portfolio in September comprising 11 DeFi crypto entities, including Ether, Uniswap, and Chainlink. Other options include launching IPO investing offerings or long-term investments. Even so, it’s unclear whether these strategies will plug the revenue gap for firms left by the day-trading frenzy drying up.

DeFi protocols saw the most growth by far in use for money laundering, at 1,964%. Chainalysis cautioned that DeFi won’t realize its full potential “if the same decentralization that makes it so dynamic also allows for widespread scamming and theft.”. Why this matters: Crypto can’t become a mainstream tool until it sheds its negative associations.

The slow-burn disruptor: Decentralized finance (11/29). We learned quite a few new terms this year (here’s looking at you, non-fungible token), but few have quite the disruptive potential as decentralized finance (DeFi). It popped up frequently enough that by November, we were ready to tell you everything you need to know about it. Incumbents try their luck with robo-advisors (2/18).

Let’s debrief: Of the many fintech trends we’ve tracked this year—from the mainstreaming of blockchain-based decentralized finance (DeFi) to using AI to underwrite insurance—there’s been one clear through line: An unprecedented wave of funding has saturated virtually every corner of the space. Over the first three quarters of 2021, fintechs globally raised $94.7 billion in funding.

Coinbase also plans to build out its crypto wallet beyond trading so users can interact with metaverse-linked products like DeFi solutions and NFTs. The exchange is starting in pole position: 61.8% of mobile phone users in the US and UK used Coinbase to buy cryptos as of March, compared with just 8% for Gemini.

More on this: The DeFi and Blockchain Equity ETF would track the Solactive Decentralized Finance and Blockchain Index, per the filing, investing at least 80% of its assets in companies that advance blockchain technology and digitize finance.

DeFi has been touted as a solution that could bring greater efficiency to modern finance, but existing financial regulations typically don’t cover DeFi, which results in hurdles for the technology’s wider adoption. The likes of Chainalysis moving into DeFi can help providers conduct business intelligence, such as identifying anomalous transactions and scams.

Now that cryptos are table stakes, users will flock to whichever app offers the widest range of assets at the best price, which is why eToro added a DeFi portfolio, for example.

Dorsey’s digital payment platform Square is working on a platform that lets developers create DeFi solutions on the Bitcoin blockchain. Though no details are known yet, we could expect these solutions to be accessible via Twitter. The bigger picture: Twitter isn’t the only social media company looking at adding cryptos to encourage user engagement and facilitate payments on their platforms.

Dorsey is big on Bitcoin: He recently announced that his digital payments firm Square will develop decentralized finance services on the Bitcoin blockchain, and he invested in a Bitcoin development fund in February. Amazon. The ecommerce leviathan posted an opening on its payments team last week to develop its Digital Currency and Blockchain strategy, per Business Insider.