American investment bank JPMorgan reports that corporate interest in decentralized finance (DeFi) is waning, linking this trend to a series of cyberattacks and stagnant total value locked (TVL) in the ecosystem. According to the bank’s analysis, recent security breaches are having a direct impact on the sector’s growth potential.
KelpDAO attack and cascading effects
June brought a major crisis to the DeFi ecosystem when KelpDAO fell victim to a significant hack. Within just a few days, the protocol saw $20 billion in locked assets vanish, after an attacker exploited a cross-chain bridge. The breach enabled the creation of $292 million worth of unsecured rsETH and led to large-scale withdrawals from lending platforms.
DeFi protocols were left with around $200 million in bad debt on their balance sheets as a result. The attack’s repercussions extended beyond directly affected platforms, forcing the broader ecosystem to absorb the shock due to the tightly interconnected nature of DeFi protocols.
“While traditional investors tend to hold onto cash during uncertain periods, we are seeing cryptocurrency investors shift towards stablecoins in the aftermath of recent attacks,” was noted in the report.
Security flaws and growth limitations
Smart contract vulnerabilities, phishing attempts and technical flaws in cross-chain bridges offer hackers opportunities to drain large amounts of funds through single points of failure. Despite years of security enhancements, major cyberattacks targeting underlying infrastructure and cross-chain protocols continue to result in billions of dollars in losses.
The highly complex and interwoven structure of DeFi infrastructure is amplifying risk. Analysts point out that although bridge solutions create more flexibility for platforms, their intricate architecture and sometimes insufficient verification processes contribute to increased security gaps.
These security issues are not confined to direct financial damages. Repeated attacks are steadily eroding user and institutional trust in the ecosystem. Each major incident prompts retail and institutional players to withdraw from DeFi, triggers calls for tighter regulations and slows down broader adoption across the sector.
TVL and stablecoin shifts
According to JPMorgan’s report, losses from cyberattacks in 2024 are already nearing the levels seen in 2025. Even as smart contract audits become more frequent, vulnerabilities remain most acute in infrastructure and bridging technologies.
Total value locked has experienced a partial recovery in dollar terms; however, growth in terms of Ethereum (ETH) remains nearly flat. Analysts interpret this as a sign that DeFi’s organic expansion is limited, raising questions about its capacity to scale at the institutional level.
Investors are opting for safer havens in times of uncertainty. After the KelpDAO attack, much of the capital pulled from DeFi lending platforms moved into Tether’s USDT, favored for its high liquidity and ease of conversion to cash. This highlights USDT’s status as a preferred asset during periods of risk aversion.
