Huma Finance cofounder Erbil Karaman expects the next phase of DeFi expansion to be driven by a dramatic rise in stablecoin issuance, rapid tokenization of real-world assets, and a shift toward automated, AI-supported yield strategies, but warns that core structural risks across lending markets remain underappreciated.

Karaman said DeFi still suffers from three major categories of risk, starting with liquidations.

“This is the biggest risk in DeFi,” he told Yellow.com in an interview, pointing to how users often underestimate how quickly leveraged positions can unravel during volatility or liquidity shocks. Events like “1010 or USDX” showed how fast liquidity can disappear, triggering cascades of liquidations “instantly.”

He also highlighted the persistent danger of negative carry. Borrow and supply rates can flip without warning, he said, and “you might be paying a lot of money to the DeFi lending platform, but when you get your money back, you might be under your principle.”

Karaman believes these issues will be tested further as DeFi absorbs new institutional capital and tokenized assets.

While over-collateralization works well for volatile digital assets, it breaks down for real-world collateral. “In real-world assets, it’s very hard to achieve over-collateralization,” he said, arguing that asset-backed systems need “other stability mechanisms apart from over-collateralization.”

Huma is developing alternative approaches, including routing into primary markets and using reserve-style protections. He described Huma’s new reserve design as “an insurance-like system that protects against downward pressure on these assets.”

Stablecoins Expected To 10x

Despite regulatory uncertainty, Karaman forecasts a major surge in supply. “Next year, my prediction is 10x growth on stablecoin issuance,” he said, citing recent laws and the timelines required for large institutions to activate newly approved issuance frameworks.

That growth, he added, will spill into related sectors: “Solutions built on top of them are going to see similar type of growth including stablecoin lending.”

He also pointed to rising institutional interest.

Huma recently crossed “100,000 depositors,” and he said one of the largest fintech lenders will soon announce a stablecoin-based lending product built on Huma’s platform.

RWAs, Cross-Chain Infrastructure And The End of Manual Vaults

Karaman expects tokenized U.S. Treasuries, credit, and other cash-flowing assets to expand meaningfully in 2025–26. RWAs, he said, will benefit from DeFi’s unique “looping mechanisms,” which can enhance yields without adding excessive risk.

He sees major improvements in cross-chain resilience as well. Bridges were “one of the biggest attack vectors,” but the shift toward architectures like LayerZero represents “great news” as multi-chain issuance becomes the norm and security improves “by time, not by audits.”

Yield infrastructure is also entering a new era, he said.

Traditional vaults are manually managed, and therefore fragile. “Humans involved… can make mistakes,” he said. With new vault infrastructure tied to automated agents and bots, “we’re going to see a big shift toward automated vaults.”

Institutions Want Clarity, Not Centralization

Karaman maintains that institutional adoption does not require sacrificing decentralization.

What institutions want, he said, is transparent liquidation logic, predictable downside analysis, and proven controls.

He pointed to Aave’s record and said firms like Chaos Labs “underwrote close to a trillion dollars of DeFi lending with zero bad debt.” He also pushed back on the idea that on-chain transparency must increase. “I’m a very big privacy advocate,” he said. “I strongly believe that we should have more privacy than more transparency.”

Zero-knowledge systems, he argued, now allow full transaction privacy while still enabling proof-of-fault for regulators. Across stablecoins, RWAs, and automated yield strategies, Karaman expects growth “in every single one of those segments.”

What matters most, he said, is not predicting macro cycles, but fixing the underlying system. “DeFi has to get its shit together and make sure it's systematically building a better microstructure.”