Beyond the Liquidity Trap: The 2026 DeFi 2.0 Boom and Unordered Rebuilding

2025 has come to an end, and the cryptocurrency market and traditional financial systems are facing an unprecedented turning point. What is a liquidity trap—it is not merely a financial phenomenon but a structural contradiction symbolizing the end of the Kondratiev wave cycle and the transition from the first curve to the second curve. As indicated in Coinbase’s year-end report, “2026 Crypto Market Outlook,” the market is in the midst of chaotic restructuring, and DeFi 2.0 is showing an inevitable direction for rapid growth through this turbulence.

The End of the Kondratiev Wave Cycle and the Collapse of Trust in the First Curve—The Beginning of Market Disorder

In early 2025, I discussed the unsustainability of past speculation and narratives. At that time, there were seven giants in the market, but now only a few continue to fight on their own. Many players are exiting or shifting toward the development of the more grounded second curve.

The event on October 11 is emblematic. On this day, the crypto market experienced a single-day maximum liquidation of $19.3 billion, followed by total liquidations of about $40 billion over the next few days. On the surface, it appears as an extreme concentration of leverage in a low-liquidity environment, but fundamentally, it stems from the lack of sufficient players in a zero-sum market. When too few players remain at the table, all cooperative strategies become invalid, and the difficulties faced by opponents become an inevitable factor in the end of the first curve of the market.

At the same time, as seen in the manipulation of the $TRUMP token, the foundational belief in the first curve is fundamentally collapsing. The liquidation of expectations based on simple narratives symbolizes the end of gambling-style speculation. In contrast, Onchain Asset Management, RWA Finance, and tokenization-based DeFi 2.0 markets are becoming the practical, long-term development routes for ecosystem companies, representing the next inevitable phase.

Limitations of the Traditional Financial System—Liquidity Drying Under Digital Heavy Regulation

By the end of 2025, the global economy has shifted from inflation to full-fledged stagflation. Many central banks’ monetary policies have lost effectiveness, leaving only emotional value adjustments. Interestingly, many economists still insist on rate cuts.

From February 2020, before the pandemic, to the peak in April 2022, the US M2 money supply increased by over 40%. Facing this massive liquidity, subsequent QT (quantitative tightening) and QE (quantitative easing) have become largely formalistic emotional therapies, with adjustments of 25 or even 100 basis points already losing their original quantitative economic value. The liquidity trap refers to a situation where rate cuts become a perfect combination of recipients’ emotional expectations and policymakers’ forced decisions.

On October 29, Nvidia’s market capitalization surpassed $5 trillion, reaching this scale for the first time in history. With BTC currently at $67,690, and market-wide liquidity significantly constrained, the valuation of Nvidia exemplifies the market’s imbalance.

Around the world, there is a massive misconception that “data can be used if available, and regulations can be imposed if methods exist.” The costs of rules and regulatory barriers of old systems have already far exceeded opportunity and risk costs. The rigidity of digital regulation forms a “Data Medieval” effect—imposing greater costs without breaking doctrinal dependence on historical pathways.

Asset Tokenization and RWA Revival—Growth Engines of the Second Curve

In 2025, the narrative around RWA experienced a remarkable revival. The reason is simple: due to the collapse of trust in the first curve, during the uncharted period where no new terms had been agreed upon for the second curve, RWA emerged as a stopgap solution, earning the MVP of the year.

However, RWA is not just a name; it is built from scratch. The problem is that understanding of this term varies widely among users. By the second half of 2025, most regions worldwide understand RWA as akin to asset tokenization via crowdfunding.

What is the difference between RWA with no real value and the crowdfunding of stocks at that time? Do liquidity-starved RWA assets truly need to be tokenized? According to data analyzed in Coinbase’s report, the four main asset classes remain T-Bills, Commodities, Liquid Funds, and Credit Loans.

By 2026, these assets will continue, but the emerging developing economies’ real business in DeFi and crypto finance will enter the RWA market as asset suppliers in parallel. Among these, Stablecoin Payments and Supply Chain Finance are expected to grow rapidly and become the main directions.

The Rise of Emerging Developing Economies—Practical Applications of Crypto and Open Finance

In 2025, while developed countries and regions are troubled by stablecoin and crypto finance management policies, the development speed of emerging developing countries is astonishing.

In Nigeria, India, Brazil, Indonesia, Bangladesh, and many regions in Africa, South America, South Asia, Southeast Asia, Eastern Europe, and the Middle East, the application growth rate of stablecoins and open finance has achieved exponential growth for three consecutive years. The actual adoption rate in these regions far exceeds that of developed economies, often surpassing the usage of their local mainstream fiat currencies.

These emerging economies are rapidly expanding in the form of “off-balance-sheet assets,” forming a stark contrast to the stagflation caused by excessive regulation in developed nations. Despite historical accumulation, significant economic disparities still exist across different regions, but the analysis data of the global mainstream economy is already heavily distorted. In less than five years, the global economic structure will be reconstructed, and geopolitical relations will undergo dramatic changes.

DeFi 2.0, DAT 2.0, Tokenomics 2.0—The Next-Generation Financial Protocols

Coinbase’s latest report begins to explore new concepts like DAT 2.0 and Tokenomics 2.0. Essentially, these are different branches of the industry’s already recognized development of DeFi 2.0.

The Structural Significance of DAT 2.0

In 2025, the concept of DAT (Digital Asset Trust), popularized by MicroStrategy (MSTR), successfully spread into mainstream financial markets worldwide. The basic logic is simple: DAT premium ratio = Market capitalization of shares ÷ NAV (Net Asset Value) of held BTC (or other mainstream crypto assets).

However, this premium ratio sharply declined from Q3 to Q4, even reversing, ending the global DAT 1.0 craze. The core reasons are that the capital multiplier friction coefficient is too small, the story is too simple with limited price transparency expectations, and Davis’s double effect is too direct. Once market psychology reverses, it quickly dissipates.

While DAT 1.0 represents a transfer of value from crypto assets to traditional finance, DAT 2.0 embodies the integration of value from the second curve into traditional finance. The latter has sustainable long-term development potential. In 2025, Ondo, Ethena, Maple, Robinhood, and Figure have demonstrated promising examples of DAT 2.0, and more emerging companies are expected to grow rapidly in this domain by 2026.

Deepening Tokenomics 2.0

Tokenomics 2.0 is a broader concept. This year, the industry proposed various derivative products related to tokenomics, such as Liquid Engineering and Yield Engineering, but fundamentally, it is an advancement of Financial Engineering.

In many real financial cases, tokenomics continues to modify and optimize various financial circuits. Over the industry’s evolution, innovative, comprehensive protocols like Pendle’s PT-YT (Principal Token - Yield Token) are gradually forming.

Elements like Value Capture, Token Buybacks, Financial Engineering, Regulatory Clarity, and Protocol P&L are not just theoretical terms but are becoming the implementation layers of next-generation financial infrastructure. Among them, Asset Clearing Capability is a necessary condition for the benign development of RWA Finance. Whether the market can reach consensus on this point in 2026 will significantly influence the growth trajectory of the RWA market.

Outlook for 2026: Opportunities Amid Disorder and the Formation of New Nash Equilibria

Looking back at 2025, the series of analyses I proposed—from the “Second Curve of Growth” in February, the “End of the Kondratiev Cycle” in April, the GENIUS Act analysis in May, to the Stablecoin asset chainization in September—closely aligned with actual market developments.

Several key issues remain for 2026:

First, how does the current level of disorder compare to the period of 1910–1935, and how much time remains in this window? The speed of phase evolution driven by information interaction varies greatly, with differences exceeding 2.5 to 5 times in many aspects. The space for geopolitical contradictions to spill over is vastly different, increasing the inevitability of contradictions exploding. The nonlinear effects brought by AI and crypto surpass industrial electrification by far.

Second, what is the intrinsic development speed of Crypto and Open Finance, and which side—traditional finance or crypto—will become the dominant force amid compliance conflicts in positive markets? Data from emerging developing economies provide a clear answer: the intrinsic development speed of crypto and open finance will far exceed the acceptance and understanding speed of traditional economies and markets.

Third, the combination of the above two creates a nonlinear problem. Will disorder in 2026 reach a turning point, allowing Crypto and Open Finance to cross the gap and rapidly enter mainstream finance and markets as independent growth factors? This is the most critical question.

Attention should be paid to key indicators in Coinbase’s report. As of Q4 2025, the total global stablecoin supply reached $305 billion, with a total transaction volume of $4.76 trillion. Against the backdrop of BTC at $67,690, and considering the global M0 supply of $15 trillion and total currency transaction volume of $1,500 trillion, the proportion of stablecoin supply is about 2.0%, with an application rate of approximately 3.2%. Notably, the average activity level of stablecoins exceeds that of traditional fiat by 160%.

Furthermore, considering the 65% CAGR over four years embedded in the report and various foreshadowings in 2025, it is concluded that open finance will surpass the early majority threshold within this one to two years. Breaking through the liquidity trap, the explosion of DeFi 2.0 is no longer a prediction but an inevitable consequence of market megatrends.