JPMorgan: DeFi Stagnation and Hacks Deter Institutions

JPMorgan analysis reveals DeFi growth is stalling as Kelp DAO and Drift Protocol exploits drive investors toward safer assets like Tether.

According to information from The Block, a JPMorgan analysis reveals that DeFi growth is slowing sharply, with “contagion” risks between protocols deterring the entry of larger capital.

The Domino Effect Shakes Foundations

The primary catalyst for the recent wave of sell-offs was the breach of Kelp DAO, where attackers managed to create uncollateralized tokens through a vulnerability in cross-chain infrastructure. These assets were subsequently used as collateral on Aave, leading to significant losses and defaults.

This case highlights a fundamental risk in DeFi: the intense interconnectedness between protocols. Even a small component within the system can trigger a domino effect, impacting much larger platforms.

As a result, investors withdrew funds from the sector, redirecting them toward safer assets like Tether, which led to a sharp decline in Total Value Locked (TVL).

Growth Proves to Be an Illusion

Analysts note that much of the growth in DeFi over recent years has been the result of rising asset prices rather than a genuine influx of new capital.

When TVL is measured in Ethereum instead of dollars, the sector reveals stagnation or even a decline since 2022. This calls into question the sustainability of the model and its ability to attract long-term investors.

At the same time, yields in DeFi are decreasing. Interest rates of around 5% on stablecoins no longer seem sufficient to compensate for smart contract and governance risks, especially given competitive yields available in traditional markets.

2026: A Year of Record Losses

In the first four months of the year alone, losses from hacks and exploits in DeFi have exceeded $750 million. Beyond the Kelp DAO incident, another significant event was the breach of Drift Protocol, attributed to a hacking group linked to North Korea.

These events reinforce the perception that the sector still functions more as a technological experiment than a mature financial system.

Institutions Seek Alternatives

The report emphasizes that institutional investors remain particularly sensitive to three main risks: the lack of a clear regulatory framework, the opacity of operations, and the potential for rapid loss propagation between protocols.

Consequently, capital is gradually shifting toward more structured solutions, such as the tokenization of Real-World Assets (RWA) on private or strictly regulated blockchain networks.

The Core Issue: Trust

The analysts’ conclusion is clear: DeFi does not have an innovation problem, but a trust problem. Until the sector moves toward stricter security and governance standards, institutional participation will remain limited.

In its current form, DeFi offers high yields but disproportionately high risk—a combination that is increasingly difficult to reconcile with the requirements of large-scale investors.

For the market, this means one thing: the next phase of development will not be driven by experimentation, but by stability.