This month, major institutions moved into DeFi ahead of the CLARITY Act. Apollo partnered with Morpho and BlackRock integrated with UniswapX, both acquiring protocol tokens. Ethereum underwent a technical overhaul while Aave lost key contributors over a controversial v4 proposal. We also cover LayerZero's Zero launch, Hyperliquid's prediction markets, and the CLARITY Act stalling in Congress.
This quarter has yet again experienced a definitive shift in institutional strategy. Just as institutional stablecoin usage grew before the GENIUS Act was put in place, we're now seeing a similar trend: major financial institutions are getting involved in DeFi ahead of the CLARITY Act discussions in the Senate. This act is expected to finally define how crypto assets will be classified, regulated, and used.
The biggest landmark example of this is Apollo Global Management’s cooperation agreement with Morpho. Apollo struck a deal to support lending markets built on Morpho’s on-chain protocol, essentially integrating some of their private credit portfolio with decentralized liquidity. Most notably, the deal includes a provision for Apollo to acquire up to 90 million Morpho tokens over the next 48 months which represents 9% of the protocol’s total supply. While Apollo has prior experience investing in crypto projects, such as Plume, their participation in Morpho represents a positive development, as it strengthens the notion that ownership of a protocol's native token is becoming a standard component of institutional investments.
At the same time, BlackRock has integrated its tokenized fund BUIDL with UniswapX. This partnership ensures BUIDL investors receive the most efficient pricing through Uniswap’s decentralized price auction mechanism, effectively treating the protocol as a primary liquidity venue. Beyond just the technical integration, Uniswap Labs confirmed that BlackRock has made a strategic investment through the purchase of UNI tokens. While the total allocations remain undisclosed, this again reflects a broader shift where the world's largest asset manager is actively optimizing its products using the very DeFi primitives that were once considered too alternative to interact with.
To conclude, we are seeing a growing comfort level from traditional large institutions when it comes to interacting with tokens and tools within DeFi, even in the absence of clear regulatory frameworks. This largely undiscussed development hints at an upcoming rally from institutional players, similar to the previous adoption of stablecoins, but this time for the broader DeFi ecosystem.
Ethereum’s core has been undergoing an overhaul of its directives moving forward but also internal structure. Tomasz Stańczak announced he is stepping down as co-executive director at the end of February, passing the baton to Bastian Aue alongside Hsiao-Wei Wang. Stańczak’s departure after an 11-month tenure marks a pivot from internal restructuring to a focused delivery phase. The Ethereum Foundation plans to release a merged LEAN Ethereum and core development roadmap. This document will serve as the north star for 2026, highlighting a defined quantum strategy, post-quantum security work within the protocol roadmap, and a dedicated decentralized AI team delivering standards and experiments for the “agentic economy”.
This vision for a leaner, more resilient network is technically anchored by two major execution layer shifts, later proposed by Vitalik Buterin. To resolve the “proving bottlenecks” that account for over 80% of current inefficiencies, Ethereum is doubling down on EIP-7864. This proposal seeks to replace the previous Merkle tree with a unified binary state tree. The binary structure produces Merkle branches four times shorter than the current system, drastically lowering the data bandwidth required for client-side verification and ZK-proving. Alongside this, although not yet decided upon, Vitalik has reiterated a plan to move beyond the EVM entirely. In Vitalik’s proposal RISC-V is proposed as a new open-source instruction set architecture already natively used by most ZK provers.
Furthermore on the convergence between Ethereum and AI, OpenAI and Paradigm launched EVMbench, a new benchmark designed to evaluate how effectively AI agents detect, patch, and even exploit high-severity smart contract vulnerabilities. Earlier this month, Moonwell suffered an exploit involving code that had been written with AI assistance. EVMBench is designed to address these risks by offering different “capability modes”, testing whether an AI agent can successfully identify a flaw, modify the contract to eliminate it, or execute a full fund-draining attack in sandboxed blockchain environments. As smart contracts continue to secure billions in capital, the ability for AI to perform end-to-end security audits in real-time is becoming increasingly more important as AI as smart-contract attack vectors also keep getting better.
While technical development continues on Ethereum, its most established application Aave has had a turbulent period. Following heated discussions regarding revenue, Aave Labs proposed the "Aave Will Win" framework. Superficially, the proposal is a major win for the Aave DAO, offering to route 100% of revenue from all Aave-branded products directly to the treasury, including the frontend, swaps, and the upcoming Aave card fees. In exchange, Aave Labs requested a massive $50 million funding package to fuel the development of Aave v4. However, the proposal has been met with significant internal pushback due to its "fine" print. The revenue redirection is loosely defined, granting Aave Labs the discretion to deduct "direct user incentives" and undisclosed operational costs before the funds reach the treasury. More critically, the proposal includes a forced migration timeline that would deprecate Aave v3 within a year of the v4 launch.
The fallout from this proposal has triggered an exodus of the protocol's most vital contributors. Firstly, BGD Labs, the core technical team responsible for the security and success of Aave v3, announced it would cease all contributions by April 1st, citing a "shift in organization dynamics" and a "confrontational stance" from Aave Labs, led by founder Stani Kulechov. Following closely behind, the Aave Chan Initiative (ACI), led by Marc Zeller announced their departure this week. Zeller, the DAO’s most active governance voice, described the environment as no longer being a "decentralized collaboration," pointing to the fact that Aave Labs-linked addresses held enough voting power to effectively push through their budget despite significant community opposition. This marks a turning point for Aave. As the protocol prepares for the high-stakes rollout of v4, it must now do so without the diverse ecosystem of contributors that originally built its reputation for stability and transparency.
Outside of Ethereum, one of the most major developments that took place was the announcement of Zero, a LayerZero product trying to capture the whole infrastructure layer with the new launch of a Layer 1 blockchain, or in this case Layer Zero. The launch of Zero, the new Layer 1 blockchain from LayerZero Labs, represents what many analysts are calling the "endgame" for blockchain architecture. Following up on our previous segment of institutional adoption, prominent traditional players, such as Citadel Securities, ARK Invest, the DTCC, and ICE (the parent company of the New York Stock Exchange) are partnering with Zero to build the first heterogenous blockchain infrastructure. The significance of Zero lies in its heterogeneous architecture, which they hope finally solves the throughput-interoperability trade-off that has plagued the industry for a decade.
The most significant product evolution for Hyperliquid this month was the introduction of a testnet launch of Outcomes, or HIP-4. This development advances Hyperliquid's position toward becoming a comprehensive on-chain derivatives platform. Outcomes constitute fully collateralized event contracts, analogous to those utilized in prediction markets. This prediction market structure simultaneously facilitates the introduction of binary options. Through this strategic expansion, Hyperliquid is positioned to capture a share of the prediction market volume. Furthermore, the Hyperliquid Foundation determined to allocate a donation of $29 million worth of HYPE to establish the Hyperliquid Policy Center, dedicated to lobbying efforts for Hyperliquid on Capitol Hill, with a specific focus on the regulation of decentralized exchanges and perpetual derivatives.
Regarding regulatory developments, the CLARITY Act, which had an anticipated deadline at the end of February for working groups to achieve consensus, appears to be stalled. A resolution has not been reached between the crypto lobbying and banking lobbying groups; the primary point of contention remains stablecoin rewards, a topic not fully addressed within the GENIUS Act.
Superform has completed a Token Generation Event (TGE) and launched its token, UP. With the release of UP, the platform is introducing a mobile application that functions as a new neobank/bank replacement. This mobile app gives users easy access to DeFi yields and will incorporate more neobank-like features in the future. Resolv Labs announced a major integration of Janus Henderson’s AAA-rated CLO fund (JAAA) into its yield architecture. An integration facilitated through Centrifuge and Aave Horizon, with up to $100 million allocated. Lastly, during the Iran conflict, which commenced over the weekend, significant demand was observed in Markets from Kinetiq and its USOIL perpetual market. This uptick was particularly notable because traditional oil markets were closed during the weekends. This was subsequently referenced by Bloomberg, in addition to other HIP-3 markets, growing the awareness around Hyperliquid and its HIP-3 markets.
