American investment bank JPMorgan reported that institutional investors’ interest in DeFi has decreased due to cyber attacks and stagnant total locked value (TVL) in the field of decentralized finance (DeFi) in recent days. According to the bank’s analysis, the emerging vulnerabilities directly affect the growth of the ecosystem.
KelpDAO attack and chain effects
There was a significant crisis in the DeFi ecosystem in June. An attack that KelpDAO faced resulted in $20 billion worth of locked value being deleted from the protocol in just a few days. In this incident, which was initiated by the attacker by targeting a bridge connecting different blockchains, $ 292 million of unsecured rsETH was generated and large funds were withdrawn from credit platforms.
Approximately $200 million remained on the balance sheet of DeFi protocols as bad debt. The impact of the attack was not limited to the directly damaged platforms; Because DeFi protocols are tightly interconnected, such shocks spread throughout the ecosystem.
“While traditional investors tend to stay in cash during uncertain times, it seems that investors are turning to stablecoins after the recent attacks in the crypto space.” An evaluation was shared as follows.
Security vulnerabilities and growth constraints
Smart contract vulnerabilities in DeFi protocols, phishing attacks, and technical weaknesses in bridges allow attackers to extract large amounts of funds from a single weak point. Despite years of security improvements, cyber attacks, particularly targeting infrastructure and cross-chain bridges, continue to cause billions of dollars in losses.
The intertwined structure of complex infrastructure and systems causes the risk to grow. Although bridge solutions bring greater flexibility to platforms, complex architecture and sometimes inadequate verification processes increase vulnerabilities, according to analysts.
These security problems are not limited to direct financial loss; Recurrent attacks damage the trust of users and institutions in the ecosystem. Each large-scale attack causes users and institutional investors to move away from DeFi, introduce harsher regulatory practices, and slow down the pace of ecosystem adoption.
TVL and stablecoin movements
JPMorgan’s report stated that losses due to cyber attacks by 2024 are very close to 2025 levels. Although smart contract audits are becoming more frequent, most vulnerabilities are concentrated in infrastructure and bridges.
While total locked value has rebounded slightly in dollar terms, growth in Ethereum (ETH) has remained nearly flat. This situation is interpreted as DeFi’s organic growth is limited and its scalability potential at the institutional level is questioned.
Investors also turn to safer havens in uncertain times. After the KelpDAO attack, a large amount of capital from DeFi lending platforms shifted to Tether’s USDT, which has high liquidity and strong conversion to cash. This development showed that USDT is a prominent choice during risk-off periods.
