Over the past four months, DeFi's locked value has quadrupled.
At first, everyone thought DeFi was the cure for the crypto industry.
After the "March 12 crash," the cryptocurrency market slumped and investment sentiment plummeted. The DeFi ecosystem faced a liquidity crisis, with total value locked (TVL) dropping from $1.16 billion to $740 million.
However, although MakerDAO's liquidation events caused the protocol to lose $5.67 million, just half a month later it successfully auctioned over $5 million worth of DAI in one swift move—leaving everyone amazed.
After March 12 came market recovery—and DeFi's revival.
After the crash, it took two months for DeFi’s TVL to rebound to $1 billion. One month later, it surpassed $2 billion. Then, going from $2 billion to $3 billion, it took only 20 days.
In other words, within the past four months, DeFi’s TVL quadrupled. The total market cap of DeFi grew tenfold in just three months.
Beyond this value rebound, DeFi's explosive growth was largely driven by the "liquidity mining" craze led by Compound.
Now, riding the DeFi wave, major public blockchains and exchanges are all jumping on the DeFi bandwagon. Ten-bagger, hundred-bagger dreams—investors hope to recreate ICO-era miracles through DeFi.
But in my view, DeFi is not a cure—it's more like an aphrodisiac. Everyone wants to harness its power for temporary euphoria, but afterward, they’ll feel even more drained.
Now, as the DeFi high begins to fade, can the crypto market continue soaring?
Everyone Wants a Piece of DeFi
On April 14, the total market cap of DeFi tokens stood at $1 billion. By July 22, it had surpassed $10 billion.
In just over three months, the market cap of DeFi tokens increased tenfold.
I saw a joke circulating on social media: Over the next three to six months, DeFi project valuations will grow tenfold—not because these projects will truly surge in value, but because, like previous trends such as tokenization, blockchain upgrades, exchange mining, and business model fads, every project will rush to jump on the DeFi bandwagon.
Indeed, under the lure of wealth, many projects have recently shed their old "gaming" or "gambling" labels and suddenly declared themselves DeFi players—including, of course, Justin Sun, who arrived fashionably late.
On July 21, Justin Sun announced Tron’s latest ecosystem development plans via WeChat Moments:
1. JUSTswap (Tron’s version of Uniswap) will launch on August 17;
2. USDJ JST staking mining will go live on August 31;
3. TRX will officially enter the blockchain oracle market on August 31.
Following Compound, numerous DeFi applications successively introduced liquidity mining mechanisms.
Previously non-tokenized DeFi projects, lured by profit potential, rushed to issue tokens and list them. Even non-DeFi projects began branding themselves as DeFi.
DeFi has become a belle that everyone wants to dance with.
As new DeFi projects keep emerging and stimulating investors’ appetite for wealth, exchanges naturally won’t miss out.
Wang Ruixi, founder of Hoo Exchange, openly stated on social media: When we see a DeFi project, there are only two steps: 1. Invest immediately; 2. Force rapid wealth creation.
Just months ago, derivatives exchanges dominated the scene. But the DeFi boom has given many exchanges a turnaround—KuCoin, Hoo, MXC, and HBTC saw trading volumes surge. OKEx, Huobi, and Binance restarted listings, all targeting DeFi-related concepts.
But alarmingly, old crypto-industry vices like chasing hype and forced listings are resurfacing. For example, the recently popular DeFi aggregation platform PlutusDeFi’s token PLT was aggressively listed across multiple exchanges. Subsequently, the official team clarified that KuCoin was the sole exchange partner for PlutusDeFi’s July 27 listing.
Besides exchanges quietly profiting, public blockchains are also retrofitting themselves into DeFi rails, hoping to hitch a ride on this high-speed train.
Beyond Tron, EOS launched a new DeFi project called "DeFis," causing REX resource pool utilization to reach 73.61%. Others attempting to replicate DeFi include Bytom, Nervos, and Cardano—all eyeing Ethereum enviously: “Goddess DeFi, if Ethereum can’t handle you, come to me.”
For a moment, it seemed like everyone was doing DeFi!
Regarding the current state of DeFi, I agree with FTX founder SBF: “The DeFi industry is currently in a bubble. The so-called explosive growth in trading volume is essentially just another form of volume inflation on decentralized exchanges. This situation is dangerous and could push DeFi toward existential peril. How to let the bubble deflate gently and solve underlying issues is what people should be worrying about.”
Dovey Wan, founding partner at Primitive Ventures, noted that while exchange mining at least helped exchanges attract users and volume, today’s various forms of liquidity mining in DeFi…
…beyond leaving chaos in their wake, what else do they bring? Especially when fake DeFi projects are stirring up trouble.
Still, this DeFi wave represents progress compared to the earlier ICO frenzy—at least now projects need to build products before launching tokens, whereas back then, a whitepaper alone could raise tens of millions.
DeFi Faces Centralized Regulatory Risks
Aside from being exploited as hackers’ ATMs, a latent threat looms—regulation.
Recently, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) jointly penalized Abra, a crypto portfolio app—halting its services and imposing a $300,000 fine.
Finance is a heavily regulated sector, and DeFi, which competes directly with traditional financial institutions, operates mostly in regulatory gray zones.
With DeFi gaining momentum, regulators cannot help but take notice.
DeFi offers universal financial services—non-custodial solutions such as open lending, exchanges, stablecoins, payments, and asset issuance. Users are anyone willing to engage with smart contracts.
As Dovey Wan pointed out, DeFi, as generalized decentralized financial services, faces not only illegal securities issuance issues (such as equity-like tokens in various DeFi protocols), but also foreign exchange concerns (e.g., swaps between USD stablecoins and non-USD assets), and unauthorized derivatives trading.
As long as regulators can identify the team behind a DeFi project, they can shut it down entirely.
Currently, DeFi struggles to operate fully autonomously. On one hand, most DeFi codebases are highly complex, requiring massive maintenance and auditing efforts. On the other, emergencies such as hacking incidents still require human intervention—as seen in the dForce hack.
Moreover, since DeFi primarily delivers "financial services," its operational logic is far more complex than simple Bitcoin transfers. Abra was targeted by the SEC precisely because its U.S.-based team manually provided liquidity for the product.
A useful comparison is Libra. After its launch, Libra faced intense regulatory scrutiny, revised its whitepaper, adopted more compliant terms, yet still risks failure.
It’s hard to say whether DeFi might suffer the same fate.
How Long Can DeFi’s High Last?
Judging from current trends, DeFi’s peak appears to be winding down.
Since July 16, Compound’s total value locked, loan volume, and capital size have all shown declining trends.
Two recently hyped projects, COMP and BAL, show similar patterns: multi-fold gains within a week, reaching peaks, then halving within another week.
DeFi-related tokens are taking turns surging and crashing. Another hot project, NXM, has also dropped nearly 50% from its peak.
On July 27, Bitcoin broke $10,000, Ethereum hit a year-to-date high, and major cryptocurrencies surged—while DeFi tokens were bled dry, suffering heavy losses.
There’s no longer synchronized upward movement. Instead, waves rise one after another—each fleeting moment belongs to someone new.
This suggests the current DeFi wave has mainly attracted existing crypto insiders—essentially a game of zero-sum capital rotation. High knowledge and operational barriers prevent attracting external capital and traffic.
Moreover, real DeFi users may already be leaving.
According to The Block, while trading volume on decentralized exchanges surged 70% in June compared to May, the number of users actually declined.
“All the yield farming has driven gas fees so high that genuine users are being priced out,” said one industry insider.
DeFi has pushed Ethereum transaction fees to their highest levels since 2018. Last week, Ethereum fees rose by 30%.
In a recent interview, Ethereum co-founder Vitalik Buterin criticized so-called Yield Farmers (those earning returns by providing DeFi liquidity), calling the high interest rates some liquidity providers earn “unsustainable in the long run.”
I agree with Vitalik: in the long term, DeFi interest rates cannot remain more than one percentage point above traditional finance rates.
Currently, DeFi’s path to real-world adoption faces three major challenges:
1. Blockchain infrastructure still needs strengthening.
2. The market is dominated by speculators; whether applications can genuinely attract users and create value remains unproven.
3. Regulatory policies around DeFi remain unclear, and policy risks cannot be ignored.
DeFi is too hot—perhaps it needs to cool down. We must reflect: What real needs does it serve? What value does it truly create? Only then can it run faster and go farther.
*TechFlow reminds investors to beware of high-risk speculation. The views expressed herein do not constitute investment advice.
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