The decentralized finance sector has faced significant challenges, experiencing a dramatic reduction in total value locked since its peak in late 2025. This decline of approximately 49% in total value locked, known as TVL, marks one of the steepest downturns in the industry's history, comparable to the fallout from the FTX crisis in late 2022.
#What are the key figures behind this downturn?
The total value locked in DeFi reached between $171.9 billion and $237 billion by October 2025, depending on the assessment method utilized. By May 2026, that number fell to around $38 billion, a figure notably low, even lower than the $43 billion reached after the FTX debacle. This drastic decrease correlates with Ethereum's price plummeting from nearly $4,800 to about $1,600 during the same timeframe. Such a sharp decline in the underlying asset significantly impacts the TVL metric, regardless of whether users actively withdraw their funds from the platform.
#Is Ethereum still leading in DeFi?
While Ethereum continues to dominate the DeFi landscape, its position is weakening. The blockchain's dominance over total DeFi TVL fell from 63.5% in early 2025 to around 54% by May 2026, despite maintaining a locked value of about $45.4 billion. This shift indicates an evolving DeFi market, with liquid staking protocols and tokenized real-world assets gaining traction as user preferences shift towards familiar assets structured within DeFi environments.
#What factors contributed to the user exit?
A confluence of three main factors has prompted users to withdraw from the market. Firstly, the general decline in token prices has mechanically triggered a reduction in TVL. Secondly, yields have compressed as the competition for deposits has intensified and speculative activities have diminished. Lastly, security breaches within DeFi platforms have steadily eroded user trust, motivating cautious investors to seek stability in centralized options or remove their assets altogether.
#How should investors view the significance of TVL?
It is crucial for investors to recognize that TVL is an inherently flawed metric. It often double-counts deposits across various protocols, fluctuates with token values independent of user activities, and does not provide insight into revenue generation, profitability, or user retention. The decline of DeFi TVL beneath $43 billion—lower than the nadir after one of crypto's most severe collapses—signals that current market adversity extends beyond merely a price drop. This shift represents a deeper, fundamental re-evaluation of on-chain capital allocation and user investment preferences.