The total value locked (TVL) in decentralized finance (DeFi) has seen a significant drop of over 30% from its December peak, a clear indication of the ongoing market uncertainties and the persistent macroeconomic pressures.
According to DefiLlama, the current TVL in DeFi is approximated to be $94.65 billion. This figure is a far cry from the $137 billion mark it reached on December 17, a high point that has since been on a steady decline. The TVL had hit a recent low of $88 billion last month before it showed signs of a slight recovery.
In the latter part of the previous year, the increase in DeFi’s locked value coincided with a general rally in the crypto market. This rally was largely attributed to the November 5 elections that saw pro-crypto U.S. President Donald Trump take office. The TVL of $94.49 billion is similar to the levels ahead of the election and before a run-up above $100 billion. However, the latest drop-off is indicative of a shift in investor sentiment.
Vincent Liu, the Chief Investment Officer at Kronos Research, noted that the recent decline in DeFi TVL is a clear demonstration of how much weight market uncertainty can put on decentralized finance.
Liu further pointed out that Ethereum and Bitcoin have experienced a decrease in active addresses in the past week. This decline reflects a loss of user confidence due to price rectifications, increased competition from alternative blockchains, and the ongoing macroeconomic concerns.
Macroeconomic pressures are increasingly weighing down on DeFi. Trump’s crypto bull run experienced a fizzling out during the first quarter of the year as the administration enacted extensive reciprocal tariffs on key trading partners, dampening the initial excitement over the administration’s pro-crypto stance.
Aside from trade, worries over persistent U.S. inflation and the Federal Reserve’s delay in cutting interest rates have also been suppressing sentiment. Bitcoin reached an all-time high of above $108,000 in January but has since fallen to about $83,000. Similarly, Ethereum declined from $4,000 in December to its current price of $1,800.
Kevin Guo, a director at HashKey Research, highlighted the macroeconomic challenges that are hindering DeFi growth. He explained that while the broader DeFi ecosystem has evolved over the past few years, there is still significant work to be done to develop DeFi-native products and integrate them into institutional financial products.
Guo stressed that competitive rates, stronger security guarantees, and a streamlined user experience are essential prerequisites for opening the market to institutional participation.
Despite the short-term volatility, some experts still view DeFi as a strong long-term investment. Liu stressed that innovation is “crucial” for DeFi to regain its footing and the sector must persistently innovate.
He noted that a reversal of Trump’s tariff policies and a positive U.S. consumer price index (CPI) report due next week could trigger a broad market recovery that helps bring DeFi back into favor.
Nick Ruck, Research Director of LVRG, stated that DeFi is well-positioned to be a long-term growth story. He further stated that as regulators worldwide become increasingly friendly to blockchain technology and incorporate real-world assets in financial frameworks, DeFi is emerging as a good long-term investment prospect with comparatively stable investor yields.
With ongoing challenges to the market, the future of DeFi will likely depend on regulatory equilibrium, macroeconomic trends, and the ability of DeFi protocols to adapt to user demand.
