TVL Stagnates While Stablecoins Soar - What Is Wrong With DeFi?

The Blockchain Sector 2025-05-17

May 17, 2025

It’s no secret that DeFi tokens have underperformed over the last couple of years. What is more concerning is the lack of new users and ultimately TVL. There has been little interest in decentralized finance and the alchemy it offers.

The chart below from DeFillama shows how DeX volume (green bars) is increasing, stablecoin market cap (green line) is at an all time high while DeFi TVL (blue line) is still below where it was in late 2021.

What’s happened over the last 4 years?

There has been a certain amount of consolidation towards DeFi market leaders such as Uniswap and Aave. We’ve seen few new players establish traction and revenue which has led to an exodus of talent and mindshare.

The uphill battle to attract users makes it a challenging prospect for founders and developers. This leads to less innovations and break out products, leading to less to get excited about, creating a vicious circle.

How do we make DeFi great again?

Speculation. Perceived opportunity brings users. We need to attract mainstream users back to decentralized finance. This is harder than it sounds given the current market conditions.

There are a few things aligning for the subsector however.

Stablecoin Growth - As Bitcoin rises price targets are reached and users are increasing stablecoin balances. The opportunity to earn yield (at higher rates than tradfi) is DeFi’s trump card.
Regulation - The easing regulatory environment in the US and around the world should see additional real world assets come on chain such as stocks, bonds and commodities. These products are well suited to the different layers of DeFi products that can be built on top of them. Want to short gold using Tesla shares as collateral? There will be a product for that and it will trade 24/7 on permissionless decentralized infrastructure.
Simplified UX - I’ve been working in decentralized finance from the start and I struggle with some of the complexities of bridging, swapping, borrowing, leveraging, looping different strategies. Then having to calculate risk based on questionable models and assumptions. There are improvements like happening and products like Contango and SummerFi’s Yield Loops are simplifying this whole experience.