The decentralized finance ecosystem has shed roughly half its total value locked since peaking in October 2025. A 49% decline in TVL represents one of the sharpest contractions the sector has experienced, rivaling the post-FTX collapse that rattled crypto markets in late 2022.
The numbers behind the drawdown
DeFi TVL peaked somewhere between $171.9B and $237B in late 2025, depending on the methodology used. By May 2026, that figure had reportedly dropped to approximately $38B, a level that actually sits below the roughly $43B trough the market hit after the FTX implosion.
Ethereum’s price fell from nearly $4,800 to around $1,600 over the same period. When the underlying asset powering most DeFi protocols loses two-thirds of its value, TVL shrinks even if nobody actually withdraws a single token.
Ethereum’s shrinking dominance
Ethereum remains the undisputed leader in DeFi, but its grip is loosening. The chain’s share of total DeFi TVL dropped from 63.5% in early 2025 to approximately 54% by May 2026, even as it still held roughly $45.4B in locked value.
Liquid staking protocols and tokenized real-world assets have emerged as two of the most popular categories in the current cycle, representing a shift away from experimental lending markets toward products that wrap familiar assets in DeFi-native wrappers.
What pushed users to the exits
Three forces converged to create this drawdown. Token prices declined across the board, dragging TVL numbers down mechanically. Yields compressed as competition for deposits increased and speculative activity cooled. Security incidents continued to erode trust, with repeated breaches pushing risk-averse capital toward centralized alternatives or toward the exits entirely.
What this means for investors
TVL is a flawed metric. It double-counts deposits across protocols, fluctuates with token prices regardless of actual user behavior, and tells you nothing about revenue, profitability, or user retention.
DeFi TVL dropping below $43B, the low point after one of crypto’s worst-ever collapses, suggests the current malaise runs deeper than a simple price correction. It reflects a fundamental reassessment of where on-chain capital should live.