DeFi, Has Institutional Capital Begun to Exit?

▲ DeFi/AI-generated image ©

The DeFi market is reeling from the shock of large-scale hacks and liquidity collapse, with clear signs of institutional capital outflow emerging.

According to investment media FXStreet on April 24 (local time), JPMorgan stated in a recent report that ongoing hacking incidents in DeFi and stagnant Total Value Locked (TVL) are significantly eroding its appeal to institutional investors.

In particular, the exploit related to KelpDAO led to the evaporation of approximately $20 billion in TVL in a short period, rapidly expanding concerns about systemic risk. Beyond just the affected protocols, funds have flowed out even from unrelated liquidity pools, shaking overall market confidence.

A larger problem is the stagnation of growth. While DeFi TVL has partially recovered in USD terms, it remains virtually stagnant in Ethereum terms. This signifies a lack of genuine organic growth and has been identified as a key factor hindering increased institutional investment.

Market participants have quickly shifted to defensive mode. Funds have surged into stablecoins such as Tether (USDT) and USD Coin (USDC), an analysis similar to the traditional finance trend of increasing cash holdings during times of uncertainty. USDT, in particular, has strengthened its role as an 'on-chain exit tool' due to its high liquidity and efficient fund movement.

Indeed, stablecoin borrowing rates surged in Aave V3. Following the rsETH exploit on April 19, USDT and USDC borrowing rates skyrocketed from approximately 3.4% to 14%, reflecting a typical liquidity crunch situation where liquidity sharply decreased while borrowing demand simultaneously surged. Current rates still significantly exceed previous levels, indicating that market tension has not fully subsided.

*Disclaimer: This article is for informational purposes only and does not take responsibility for investment losses based on it. The content should be interpreted solely for informational purposes.*