Total value locked — the capital deposited in DeFi protocols — has fallen sharply in 2026. More interesting than the figure itself is what has not fallen alongside it.
The figures, and their imprecision
A methodological note first, because this causes considerable confusion: TVL figures differ by cut-off date and methodology. For mid-2026, figures of roughly 70, 71.77 and 72.5 billion US dollars circulate. These do not contradict each other; they refer to different snapshots. Anyone comparing TVL numbers must read the date alongside them.
Based on a DeFiLlama snapshot of 18 June 2026, TVL stood at 71.77 billion US dollars across all tracked chains. The market had opened the year at 114.49 billion. That is a decline of 37.3 percent year to date and 23.8 percent over the preceding 90 days.
Ethereum holds roughly 53.1 percent of total DeFi TVL at 38.24 billion US dollars. Concentration on a single chain has therefore increased while the total shrank.
For historical comparison: after peaking near 177 billion US dollars in late 2021, TVL collapsed by more than 70 percent within seven months to around 51 billion. The current decline is slower and shallower.
The actual observation: capital without deployment
Stablecoin supply remains at roughly 300 to 315 billion US dollars. It has not shrunk in step.
That exposes the core finding: the shortage is not liquidity but willingness to deploy it in protocols. Investors have become more selective about risk.
A look at yields explains why. Stablecoin lending rates on major platforms sit in a range of roughly 3.5 to 9 percent. Tokenised treasury products are cited around 4 to 5 percent. Anyone taking on smart contract risk, liquidity risk and liquidation risk is therefore barely better compensated than in considerably simpler alternatives.
This is not panicked capital flight. It is a repricing of the relationship between risk and return.
The second factor: exploits
In the second quarter of 2026, roughly 70 protocols were attacked, with losses of about 746 million US dollars.
Two April incidents account for most of it. The attack on Drift Protocol cost 295 million US dollars; the KelpDAO exploit followed at 293 million. Together they represented more than half of all 2026 losses.
The knock-on effect was larger than the direct damage. After the KelpDAO incident, Aave's TVL fell from 26.4 to 14.3 billion US dollars within days — a 46 percent drop in deposits. The affected protocol was not the one attacked but the sector's largest lending protocol.
That is the lesson reaching beyond individual incidents: in a composable system, confidence behaves contagiously. Anyone depositing should assume that an incident at a neighbouring protocol can affect their own position, even without a technical connection.
Where capital goes instead
Not all chains lose equally. TRON recorded a gain of roughly 5 percent, supported by its role in USDT settlement and stablecoin lending. Hyperliquid rose about 7 percent, carried by perpetuals trading and its expanding HyperEVM ecosystem.
The lending sector is also heavily concentrated. According to a DeFiLlama analysis from mid-April 2026, the ten largest protocols accounted for 78 percent of deposits, across more than 380 active lending protocols on over 80 chains.
The composition of borrowing is notable: roughly 84 percent of outstanding DeFi debt is denominated in stablecoins. On the collateral side, ETH dominates at around 39 percent, liquid staking tokens at 28 percent and Bitcoin wrappers at 14 percent.
What applies in Germany
Two points absent from international DeFi coverage that are decisive for investors here.
MiCAR helps only to a limited extent. The regulation governs crypto-asset service providers — that is, identifiable providers. A fully decentralised protocol with no responsible company does not automatically fall under the CASP regime. In practice: trading through a licensed platform gives you a supervised counterparty. Interacting directly with a smart contract does not. There is no deposit protection, no complaints body and no supervisor with jurisdiction if something goes wrong.
The documentation burden falls on you. Income from lending, staking and comparable activity must in principle be assessed in Germany as other income under Section 22 No. 3 EStG, with its own annual threshold of 256 euros. If the coins received are later sold at a profit within one year, Section 23 EStG additionally comes into play.
The DAC8 reporting obligation in force since January 2026 covers crypto service providers. Non-custodial interactions with smart contracts do not report themselves. That is not a relief but the opposite: reconstructing acquisition dates, FIFO ordering and the classification of individual transactions remains entirely your responsibility — and must match what the tax office already knows from other sources.
For DeFi activity involving meaningful sums, tax advice is not optional. The classification of individual transactions — liquidity pool positions, wrapped tokens or rebase mechanisms, for instance — is not uncontested even among specialists.
This article is for information purposes and constitutes neither investment nor tax advice.