The world of decentralized finance (DeFi) is buzzing with newfound optimism as the total value locked (TVL) in DeFi protocols has surged to an impressive $170 billion. This milestone, reached on Thursday, marks a significant recovery from the losses incurred during the Terra/LUNA debacle of 2022. The collapse of Terra had sent ripples through the crypto market, wiping out a staggering $100 billion in TVL almost overnight. Now, as we stand on the cusp of a new era, the DeFi landscape is evolving, with both old and new players shaping its future.
Ethereum’s Dominance and Emerging Contenders
Ethereum continues to reign supreme in the DeFi space, holding a substantial 59% of the total capital. However, the playing field is becoming more competitive. Enter a new generation of blockchain networks like Base, HyperLiquid, and Sui, which are slowly but surely diminishing Ethereum’s dominance. These newcomers have collectively amassed over $10 billion in TVL, representing about 6% of the market. It’s a testament to the dynamic nature of the DeFi world, where innovation is constant and competition is fierce.
Shifts in Investor Trends
In this evolving landscape, investor behavior is also undergoing a transformation. Institutional adoption of ether has led to a noticeable shift from traditional liquid staking products, such as Lido, to institutional staking solutions like Figment. Simultaneously, networks like Solana and BNB Chain have seen a surge in activity, fueled by the meteoric rise of memecoins. Solana now boasts a TVL of $14.4 billion, making it the second-largest blockchain in terms of DeFi, followed closely by BNB Chain with $8.2 billion.
A Maturing DeFi Sector
The previous DeFi bull market, spanning from January 2021 to April 2022, was characterized by rapid growth, with TVL skyrocketing from $16 billion to $202 billion. In contrast, the current cycle has been more measured, as the sector has slowly but steadily grown from $42 billion in October 2022 to the present $170 billion. This suggests that crypto investors are learning from past mistakes, particularly the pitfalls of the Terra era, and are contributing to a more mature ecosystem for lending, borrowing, and generating yield.
The Terra implosion served as a stark reminder of the risks associated with unsustainable yields. Investors, including notable entities like the now-bankrupt Three Arrows Capital, were drawn to Terra’s too-good-to-be-true algorithmic stablecoin, only to face catastrophic losses. Today, yields have moderated, with lending protocol Aave offering a 5.2% yield on stablecoins and Ether.fi providing an 11.1% return, a far cry from Terra’s enticing 20%.
Challenges and Opportunities Ahead
With the DeFi sector regaining its footing, the question remains: how can it continue to grow and surpass the record highs of 2021? The answer isn’t straightforward. While institutional adoption and investments in assets like ether and solana fuel a bullish narrative, the industry still grapples with significant challenges. Hacks, scams, and rug pulls—particularly those linked to memecoins—continue to plague the ecosystem. In the first half of 2025 alone, crypto investors lost $2.5 billion to such malicious activities.
Security and investor protection are paramount if DeFi is to position itself as a viable alternative to traditional finance. Unlike conventional banking systems, where deposits are insured and customer support is readily available, the decentralized nature of cryptocurrencies means investors are largely on their own. Losing access to private keys or falling victim to phishing attacks can result in irrevocable losses.
The Path Forward
For DeFi’s next phase—whether in this cycle or the next—to truly thrive, an emphasis on security and hack prevention is essential. The industry is just one major implosion away from another crypto winter, and building trust is crucial. As the DeFi landscape continues to mature, stakeholders must prioritize robust security measures and investor education to safeguard against potential threats.
In conclusion, while the recovery to $170 billion in TVL is cause for celebration, it’s also a reminder of the journey ahead. The DeFi ecosystem, with its blend of innovation and risk, offers immense potential. By addressing its vulnerabilities and learning from past missteps, the industry can pave the way for sustainable growth, ultimately transforming the financial landscape as we know it.
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
