The technological evolution and credit system foundation behind "Institutional DeFi Summer"

### 1. Overview

In early 2025, with the SEC officially abolishing SAB 121, most traditional financial institutions and publicly listed companies in the United States are allowed to legally provide cryptocurrency custody services and can directly access DeFi protocols to conduct on-chain financial operations. This regulatory easing has opened the door for Wall Street to embrace the cryptocurrency market, marking the arrival of a new era of deep integration between cryptocurrency and traditional finance.

Against this backdrop, Wall Street investment bank Cantor Fitzgerald has completed its first on-chain Bitcoin loan transaction with the DeFi lending platform Maple Finance: the bank deposited the purchased BTC into Maple, earning an annual yield of 4–6%. More symbolically, the helm of Cantor Fitzgerald is held by U.S. Secretary of Commerce Howard Lutnick, and this move not only breaks through policy restrictions but also demonstrates the substantial recognition of traditional giants towards crypto finance.

When a "large amount of dollar liquidity" flows into the blockchain, combined with the yields of real assets and the liquidity of DeFi protocols, it can provide new types of returns for institutions and will also accelerate platforms like MakerDAO's subsidiary Spark in issuing loans to institutions, thereby expanding the issuance scale of USDS and DAI. At the same time, as traditional institutions accelerate their layout, balancing innovation between compliance and regulation, and continuously meeting the real user needs, has become a new issue that crypto-native projects urgently need to address.

This report is written by HTX Research and will systematically outline the technical evolution of institutional-grade applications and credit mechanisms around the phenomenon of "Institutional-Grade DeFi Summer" driven by this policy, assess innovative scenarios for sustainable implementation, and look forward to the next stage of growth opportunities and challenges.

2. Policy Window: SAB 121 Repeal + GENIUS Act Advancement

The recent major adjustments in the U.S. regarding cryptocurrency regulation are accelerating the integration between Wall Street and the on-chain ecosystem. On January 23, 2025, the SEC released SAB 122, officially repealing SAB 121, which had been implemented in 2022. The latter required financial institutions to include clients' cryptocurrency assets on their balance sheets, severely limiting banks' ability to engage in custody and DeFi services; SAB 122 removes this obligation, restoring cryptocurrency assets to contingent liabilities that only require disclosure of potential losses, significantly lowering the compliance threshold and providing a clear path for banks to enter on-chain services.

Subsequently, on May 19, 2025, the Senate advanced the S.1582 GENIUS Act stablecoin bill with overwhelming support of 66 votes in favor to 32 against, establishing a nationwide unified regulatory standard for stablecoins for the first time: requiring 1:1 backing with cash or short-term U.S. Treasury securities, monthly audit disclosures, compliance with KYC/AML standards, capability for sanctions freezes, and setting penalties for non-compliant issuances. These two policies together remove institutional barriers for providing custody and on-chain lending, while also legally confirming the legitimate status and regulatory boundaries of USD stablecoins, thus building a federal-level foundation for financial institutions to issue stablecoins in compliance. This series of actions indicates that the U.S. is planning a future of "on-chain mainstream finance", where banks, investment banks, and asset management firms will have the opportunity to deeply participate in the DeFi and digital asset space under controllable and legal conditions.

### 3. The DeFi Summer for institutional business may be coming.

Following the institutional dividends from policy, institutional-level applications in DeFi are rapidly taking off, marking the arrival of a truly mature "institutional-grade DeFi Summer."

First of all, Maple Finance's TVL (Total Value Locked) has surpassed the $2 billion mark and continues to grow. It is worth mentioning that MakerDAO's Spark has specifically invested $50 million into Maple's Secured Lending Vault, converting DAI liquidity into on-chain financing products that generate stable returns of 10–17%, forming a high-yield "fixed income ladder". This structure allows users to transition from holding DAI to participating in Spark, and then to obtaining institutional-level returns on-chain through Maple, creating a multi-step credit loop that rivals traditional finance.

$5.2 million seed round layout 3Jane**, this project creates a Sybil-resistant on-chain credit scoring system by combining FICO, on-chain assets, and account behavior, providing uncollateralized USDC credit. The standard credit limit set by 3Jane — ranging from a few thousand to tens of thousands of dollars — is aimed at small and medium-sized institutions and compliant users, injecting "credit" into crypto lending and marking the starting point for the upgrade of the DeFi credit market from over-collateralization to hybrid credit.

These changes can be broken down into the following five system-level mechanisms of evolution:

3.1 Sybil Resistance and Chain Governance Trust Mechanism

Sybil protection technology combines on-chain identity verification, zkID, L2 behavior analysis, and KYC binding to ensure that each user corresponds to only one credit entity, preventing malicious multi-address score manipulation. Taking 3Jane as an example, it integrates zk technology, Plaid bank account binding, CEX operation history, and traditional FICO information, maintaining privacy while constructing a reliable "decentralized credit rating model" that is highly consistent with identity and reputation-based mechanisms in traditional finance. Furthermore, this model combines on-chain lending and repayment records with traditional credit and bank statements, employing composite scoring to dynamically assess the borrower's default probability, thus determining the loan amount, interest rate, and terms; its transparency and verifiability provide a strong trust foundation for institutional capital entry.

3.2 Structured Debt Instruments (CLOs)

Currently, multiple DeFi protocols (such as Maple and TrueFi) are actively developing structured credit products similar to collateralized loan obligations (CLO tranche) in traditional finance. This model packages a large pool of loan assets and issues different levels of debt securities, namely senior (senior secured) and junior (high yield), to meet the needs of investors with varying risk preferences. Maple retains 1–5% of risk capital in these loan pools as a buffer mechanism for the junior tranche, corresponding to higher yields; while senior tranche investors enjoy lower yields along with priority repayment rights.

Unlike traditional CLOs, DeFi tranches offer higher liquidity and transparency. Through AMM-based market mechanisms, liquidity providers (LPs) can buy or sell tranche tokens at any time through automated market making, allowing investors to adjust their positions instantly according to market conditions, rather than having to hold a security long-term as in traditional finance.

In addition, there are some technological innovations worth noting:

• Automated Management of Loan Pools: CLO smart contracts can dynamically manage loan portfolios, automatically exclude underperforming targets, and adjust return structures;
• Reinsurance Mechanism: Establish a compliant insurance pool to provide protection for the primary risk of bonds through re-staking via EigenLayer or similar mechanisms;
• Priority of Order and Transparency of Yield Layering Rules: The order of yield distribution and the liquidation mechanism in the smart contract are clear and traceable, ensuring that the system is governed publicly on-chain.

This debt instrument, which combines the three main features of structured hierarchy, security grading, and real-time liquidity, is expected to serve as a key entry point for attracting institutional funds into DeFi. Additionally, with the incorporation of credit scoring, Sybil protection, and insurance mechanisms, its product design will become more compliant and institutional, possessing a credit and risk framework that can interface with traditional finance. This not only enriches the financial toolset of DeFi but also lays a solid foundation for future real assets and institutional financing.

3.3 Credit Default Swap (CDS)

In the DeFi ecosystem, Credit Default Swaps (CDS) are becoming a key tool to address the vulnerabilities of 'pure counterparty risk' blow-ups. Currently, Aave has launched the Umbrella Safety Module (upgraded insurance pool), which supports users staking aTokens (such as aUSDC, aUSDT, aWETH) or GHO to build a risk buffer mechanism — when a borrower defaults and losses exceed a preset threshold, the system will automatically destroy a certain proportion of the staked assets to compensate liquidity providers. This is the first on-chain risk hedging structure in DeFi with 'automatic triggering + multi-asset coverage'.

The community is advancing a more standardized and productized CDS (Credit Default Swap) model. Unlike an insurance pool, a CDS is essentially a publicly traded contract: the buyer pays periodic fees, and if a reference debtor experiences a default event (such as liquidation failure or bankruptcy), the seller compensates for the loss based on the notional principal. The Opium protocol has launched the first on-chain CDS based on Aave's credit delegation mechanism, allowing users to purchase protection for specific loans (e.g., a 20 BTC credit), with compensation provided in case of borrower default. This mechanism no longer relies on loan collateral but allows market participants to isolate, price, and trade credit risk, gradually introducing market-based default pricing, tiered financing, safe isolation, and over-the-counter arbitrage logic.

In the future, DeFi will welcome a series of standardized CDS products, including single debt instrument CDS, bond portfolio CDS, and index-type CDS, corresponding to different market risks and speculative demands. This will reduce the "counterparty default risk" of the DeFi system and provide hedgable credit tools for institutional funds, thereby significantly enhancing fund security, risk visibility, and market participation willingness.

3.4 Entrusted Credit and Capital Delegation

The delegated credit mechanism in DeFi is opening new pathways for expanding credit accessibility and capital decentralization for protocols. For instance, Maple Finance is gradually introducing a "Pool DeleGate + Sub-credit" structure: Pool DeleGate acts as the main node, responsible for approving borrower qualifications and setting credit policies, while sub-borrowers can initiate loans within the selected limit range. This is similar to the sublending model in traditional finance, which can significantly expand the coverage of funds and the tier of credit services.

In the DeFi scenario, this model is defined by smart contracts that establish a legal structure for credit delegation, combined with DPoS-like node governance and automatic liquidation mechanisms to achieve efficient and transparent fund distribution. For example, the credit delegation feature under Aave allows users to grant their own collateral to trusted addresses to support the latter's borrowing purposes. However, compared to traditional on-chain credit, this design is further upgraded in Maple: proxy nodes not only achieve trusted identity binding but also share liquidation responsibilities and align their interests with platform security through token incentives (such as MPL).

Ultimately, this mechanism injects a network structure similar to a bank's "branch + sub-branch" into DeFi, where pool agents fulfill credit decision-making, risk control, and regulatory communication responsibilities. Sub-borrowers obtain financing within the permitted limits, and the protocol ensures risk protection based on real-time clearing and insurance access. This model not only optimizes lending efficiency but also introduces a governance feedback mechanism, laying the foundation for a future cross-protocol joint credit system.

3.5 Re-staking Insurance and Capital Protection

SyrupUSDC binds the depositors' USDC with an on-chain insurance mechanism, achieving efficient use of capital and multiple guarantees through the design of "re-staking + insurance pool": the USDC deposited by users participates in Maple's loans and Figment's compliant staking to earn lending and staking rewards, while automatically entering the on-chain insurance pool. In the event of protocol default or liquidation failure, this pool will automatically compensate LPs for their actual losses. This mechanism breaks through the single yield logic, achieving a product effect that combines "yield + insurance + liquidity". In a broader future ecosystem, different protocols (such as Syrup, Aave, Nexus Mutual, etc.) will be able to share insurance resources, forming a cross-platform risk mutual aid network, building an ecosystem-level risk control and capital protection mechanism for the entire DeFi market, significantly enhancing system resilience and institutional participation confidence.

DeFi is bidding farewell to the traditional "over-collateralization + AMM" model and entering a new phase that integrates Sybil credit systems + CLO structured lending + CDS credit risk hedging + delegated lending + re-staking insurance mechanisms. This system architecture not only significantly improves capital efficiency (credit replacing collateral, structured financing), but also substantially reduces default risk (with insurance, collateral liquidation, and credit scoring), enhances institutional participation willingness (because it provides compliant identity, transparent credit, and product structuring), and possesses a three-in-one on-chain round-the-clock credit capability of "leverage, insurance, and credit orientation". When these mechanisms are implemented in multiple protocols like Maple and attract large institutional funds, we will welcome institutional-grade DeFi summer: a new type of on-chain leap that is reshaping financial boundaries.

4. The New Mission of Crypto Native: Building a High-Dimensional AMM and Modular Stablecoin Yield System

4.1 Facing the future of multiple stablecoins/LSD tokens, the demand for high-dimensional liquidity AMM has emerged.

With the continuous improvement of compliance policies, large institutional funds are accelerating their entry, pushing DeFi from the era of "niche yield miners" to the era of "institutional-level finance." Institutional participants have higher requirements for capital efficiency, risk control capabilities, and composability, making the simple dual-asset pools (pair-pool) and uniform strategies increasingly inadequate. The bottlenecks of traditional AMM in terms of TVL, trading scale, and slippage control are becoming more pronounced, necessitating new infrastructure to support stablecoin, cross-chain assets, and RWA trading at the billions of dollars level.

4.1.1 Limitations of Uniswap V3 and Curve

4.1.1.1 Uniswap V3's Dual Asset Concentrated Liquidity

Uniswap V3 allows LPs to concentrate liquidity within a specified price range through the tick mechanism, significantly enhancing capital efficiency. However, it only supports pools of two assets, meaning that for multi-stablecoin scenarios like USDC, USDT, and DAI, three separate bilateral pools must be built (USDC-USDT, USDT-DAI, DAI-USDC), leading to fragmented liquidity and elongated arbitrage paths.

4.1.1.2 Curve's Multi-Asset Equalization Strategy

Curve implements an N asset pool based on stableswap invariant, allowing multiple stablecoins to trade with low slippage within a single pool. However, it applies the same liquidity distribution strategy to all LPs, lacking refined and customizable concentrated liquidity capabilities, and it is also difficult to flexibly allocate capital based on different asset combinations or market expectations.

4.1.2 The High-Dimensional Liquidity Principle of Orbital AMM

Recently, Paradigm's Orbital AMM promotes concentrated liquidity to any asset pool through the high-dimensional spherical and toroidal invariants. It retains the tick advantages of Uniswap V3 while also considering the multi-asset unified trading capabilities of Curve, representing the development direction of the next generation of DeFi infrastructure.

Orbital abstracts the "tick range" in high-dimensional space as an n-dimensional spherical cap, and achieves unified aggregation of multiple assets and multiple tick ranges through a spherical and toroidal model. Orbital inherits the concept of spherical AMM (Sphere AMM), and its reserve state meets

where xi is the reserve amount of the i-th asset for AMM, r=r is the center coordinate, ensuring that the reserves are distributed on the n-dimensional sphere.

Under the invariance of the sphere, the instantaneous price ratio of any two assets Xi and Xj during the transaction is:

This formula is equivalent to xj/δxi= yx in UNIv2 and naturally supports multi-asset.

The brilliance of Orbital AMM lies in transforming the global invariant solving problem of high-dimensional, multi-asset into finding roots of a single scalar quartic equation. This is achieved using Newton's method, which quickly converges on-chain in a fixed 3–5 iterations: each step involves only fixed-point scalar multiplication and addition, along with one division. All vector dot products and norms are pre-computed and inlined into a function, ensuring that the number of iterations is independent of the asset dimensions, thereby making both computational complexity and Gas costs predictable and controllable. This approach not only draws on best practices from protocols like Curve, which use Newton to solve invariants, but also combines superlinear convergence with fixed-step iteration, enabling efficient and economical aggregation of multi-asset and multi-tick on-chain, truly achieving fine management of concentrated liquidity for all assets within a single pool.

4.1.3 The Necessity of Innovation under Institutional Level Demand

4.1.3.1 Scalable Trading and Slippage Control

Institutional large transactions are sensitive to slippage, and both dual-asset or multi-asset pool models cannot balance depth and efficiency. Orbital concentrates capital in a high-dimensional space and can provide ultra-deep liquidity within the target price range (e.g., $1±0.5%), significantly reducing slippage and trading costs.

4.1.3.2 Diversified Asset Support

In the future, DeFi will not only include stablecoins but will also incorporate LSD, RWA, cross-chain assets, and more. Traditional AMMs find it difficult to flexibly scale to N ≥ 4 or even dozens of assets. Orbital inherently supports a unified pool design for 2 to 10,000 assets, providing the underlying assurance for institutions to build diversified asset portfolios.

4.1.3.3 Capital Efficiency and Fee Optimization

High-dimensional concentrated liquidity allows LPs to deploy funds within a narrower range, enhancing capital utilization and achieving higher trading fee income, while also reducing impermanent loss risk.

4.1.4 Comparison of the multi-pool model of the Solana project Perena

4.1.4.1 Perena's Hub-and-Spoke Architecture

Perena implements a "central pool + satellite pool" hub-and-spoke design on Solana through Numéraire AMM:

• Seed Pool (USDC, USDT, PYUSD) as the core liquidity pool
• Growth Pools (newly issued stablecoins) connect to Seed Pool through USD* LP tokens This solution alleviates the problem of initial liquidity dispersion and high issuance costs to a certain extent, but transactions are still completed jointly by multiple pools through two hops (swap → core → swap), limiting liquidity depth and path length.

4.1.4.2 Limitations of Perena Mode

Multi-hop Trading: Any non-core asset swap requires two paths, and slippage and trading costs cannot be ignored.

Fragmentation of Pool Capital: Seed Pool and various Growth Pools have fund isolation, making it difficult to achieve deep unification across pools.

Lack of customizable concentration range: Concentrated uniformly only within the range of $0.99–1.01, making it difficult to dynamically adjust based on asset characteristics or market expectations.

4.1.4.3 Why Orbital is Superior to Perena

Single Pool High-Dimensional Unification: Orbital unifies all assets within the same invariant through n-dimensional spherical and toroidal models, eliminating the fragmentation and increased hop count issues of multi-pool models.

Overlapping Tick Design: LPs can customize tick ranges for different asset combinations and risk preferences, with overlapping ticks providing more flexible risk diversification and return optimization.

On-chain Scalable Computation: After solving the global invariants using Newton's method, the computational complexity is independent of the number of assets, making it suitable for high-frequency large institutional trading scenarios.

Rich Asset Compatibility: Naturally supports multi-asset, cross-chain, and RWA, meeting the diverse allocation needs of institutions.

#### 4.1.5 Practical Challenges and Technical Prospects

However, the Orbital AMM still faces multiple challenges during its implementation: Firstly, the Newton method iteratively solving global invariants requires multiple rounds of computation. How to ensure computational accuracy while considering on-chain Gas costs, or optimizing through off-chain + on-chain hybrid aggregators, is a pressing issue to be tackled; at the same time, the complex risk management demands brought about by high-dimensional invariants and cross-tick boundary transitions require the design of robust boundary triggers and re-entry protection mechanisms to ensure transaction continuity and security; in addition, in the face of increasingly stringent regulatory environments, how to embed KYC/AML processes, on-chain audits, and asset custody services within a compliance framework to meet the compliance needs of institutional clients.

4.2 Spark: The Revenue Hub and Stablecoin Engine of MakerDAO's Endgame Strategy

Spark is the core DeFi application platform launched by MakerDAO under the Endgame roadmap, operated by Phoenix Labs, aimed at creating the hub of an "on-chain dollar financial operating system." It integrates functions such as lending, saving, yield distribution, and capital scheduling, providing rich use cases and high yield support for DAI and its derivative asset USDS, and is becoming an important growth engine for the Maker ecosystem.

Spark consists of three main core modules:

• SparkLend: A DAI-dominated lending market supporting LSD assets such as ETH, cbETH, wstETH, rETH, and stablecoins like USDC, USDT, GHO as collateral;
• Spark Savings: Users can earn stable returns by depositing USDS pegged to DAI, with returns coming from Spark's on-chain yield deployment;
• Spark Liquidity Layer (SLL): Achieves re-collateralization, liquidity activation, and strategic deployment of DAI/USDS through cross-protocol bridges and incentive mechanisms.

4.2.1 The Growth Engine Behind the TVL Leap: Collaborative Ecosystem and Layered Revenue Structure

By mid-2025, the TVL of Spark Finance has exceeded 5.9 billion USD, with annual revenue surpassing 130 million USD, representing explosive growth compared to the scale at the end of 2024. The two main driving forces behind Spark's growth are the expansion of its cooperative ecosystem and the construction of a multi-layered income structure.

Establish strategic linkage with multiple protocols:

• Inject $50M into the syrupUSDC lending pool of Maple Finance, with an annual yield of 10–17%;
• Connect to Morpho Blue for peer-to-peer lending;
• Build LSD re-staking yield path with Eigenlayer / EtherFi;
• Integrate fixed income markets with Pendle;
• Build a cross-protocol liquidity network for DAI together with Aave, Yearn, Compound, Maverick and others.

In terms of the yield structure, Spark offers a more flexible and high-yield on-chain supplement compared to MakerDAO's current RWA (such as US T-Bills) deployment.

Click the image to view the full spreadsheet This layered structure not only stabilizes the revenue stream of Spark but also provides a more diversified basis for DAI issuance for MakerDAO.

4.2.2 Spark × Maple Finance: A paradigm of on-chain credit and CeFi integration

The collaboration between Spark and Maple Finance marks a deep integration of on-chain credit and institutional-level borrowing. In 2025, Spark will invest $50M into Maple's syrupUSDC lending pool, and Maple will provide funds to high credit rating institutional borrowers (such as market makers, hedge funds, etc.) and offer over-collateralization support.

The cooperation has undergone multiple rounds of evaluation by independent risk control agencies such as Block Analitica, Steakhouse Financial, and Phoenix Labs to ensure compliance with Spark's robust yield standards. The partnership brings Spark:

• 10–17% stable returns, strengthening Spark Savings yield support;
• Enhance the market acceptance of syrupUSDC as an on-chain yield certificate;
• Enhance the asset endorsement of USDS, indirectly increasing the issuance of DAI.

4.2.3 The Core of MakerDAO's Capital Allocation: The Synergistic Value of Spark

Spark is MakerDAO's "yield amplifier + capital scheduler," connecting DAI minting with on-chain real yields, gradually pushing MakerDAO from an "over-collateralized currency protocol" towards an "on-chain dollar financial hub."

Specifically, Spark has significantly improved:

• Market Demand for DAI: Enhance the use and minting of DAI through more real yield scenarios;
• Protocol Profit: The revenue generated by Spark flows back to the Maker Treasury;
• Leverage Efficiency: Improve capital utilization through re-collateralization of assets such as LSD and USDS.

In addition, Spark is actively exploring the path to integrate native BTC, including:

• Leverage cross-chain protocols such as Babylon, ZetaChain to expand on-chain lending and yield products for BTC assets;
• Use DLC (Discreet Log Contracts) technology to map off-chain BTC actions to on-chain contract logic, constructing structured products for BTC-DAI.

As the execution layer of the MakerDAO Endgame strategy, Spark is building a modular, yield-driven, and compliance-composable stablecoin monetary system. It not only strengthens Maker's sovereign position in dollar assets but also propels DeFi from a liquidity-driven phase to a new stage of "yield-driven," providing an infrastructure akin to a "Federal Reserve operating system" for the entire on-chain financial ecosystem.

5. Conclusion

The repeal of SAB 121 and the advancement of the GENIUS Act not only signal regulatory easing but also represent an on-chain reshaping of the dollar's sovereign architecture. For the first time, the U.S. government has clarified the legitimate pathway for "custody + credit + issuance" in crypto finance, providing a regulatory moat for stablecoins and on-chain credit. On this basis, many protocols are building a brand new "on-chain dollar operating system" with modular, composable, risk-layered, and credit-verifiable on-chain financial facilities.

This is not just the next wave of prosperity in DeFi, but the starting point of traditional financial paradigms being devoured and reconstructed by on-chain technology. What we are witnessing is not an extension of old finance, but the prototype of an on-chain dollar capital market equipped with identity, income, security, and institutional recognition. On this track to "on-chain Wall Street", whoever can be half a step ahead in technology stack, credit models, and institutional interfaces may become the Federal Reserve, BlackRock, or even Goldman Sachs of the on-chain world.

This is the watershed moment for DeFi to truly enter the mainstream financial system. In the future, global capital flows will no longer rely solely on Swift, but will be realized through a multi-asset, cross-chain, credit-driven on-chain financial network, reconstructing and transitioning the traditional financial structure.

About HTX Research

HTX Research is the exclusive research department under HTX Group, responsible for conducting in-depth analysis across a wide range of areas including cryptocurrencies, blockchain technology, and emerging market trends, writing comprehensive reports, and providing professional assessments. HTX Research is dedicated to providing data-driven insights and strategic foresight, playing a key role in shaping industry perspectives and supporting informed decision-making in the digital asset space. With rigorous research methodologies and cutting-edge data analytics, HTX Research consistently stands at the forefront of innovation, leading the development of industry thought and facilitating a deeper understanding of the ever-changing market dynamics.

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Reference content

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