The numbers speak for themselves - TVL now barely reaches $94 billion. And that's after a precipitous drop from a peak of $137 billion recorded on December 17 of last year.
According to data from DefiLlama, the situation looked even sadder last month, with TVL plunging to a critical $88 billion.The market hasn't seen such a failure in a long time.
The Trump effect has evaporated
The initial surge in blocked funds in the DeFi sector coincided with a general upswing in the cryptocurrency market following the election of cryptocurrency-centric Donald Trump as president of the U.S. on Nov. 5. Current TVL has actually returned to levels seen during the election, prior to that powerful surge above the $100 billion mark.
This drop illustrates how market uncertainty can significantly impact decentralized finance. Both Ethereum and bitcoin have seen a decline in active addresses over the past week, signaling a shift in user confidence amid price corrections, increasing competition from other blockchains, and looming macroeconomic concerns.
The Trump-inspired cryptocurrency bull market began to fade as early as the first quarter, when the US president announced sweeping reciprocal tariffs against trading partners. These actions cast a shadow over the positive sentiment surrounding the new administration's cryptocurrency-focused policies.
Macroeconomic storm
In addition to tariffs, concerns over persistent inflation in the US and a prolonged pause in rate cuts by the Federal Reserve have added to the negative sentiment of market participants.
As a result, bitcoin has fallen to $83,000 from its record high above $108,000 in January, while Ethereum has plummeted from its December high of $4,000 to its current price of $1,800.
The future of decentralized finance
The downturn in the DeFi sector is directly related to the harsh macroeconomic environment, and the decentralized finance ecosystem itself has not yet reached sufficient maturity.
While the DeFi ecosystem has evolved markedly over the past few years, it still needs further maturation to build integrations with institutional investors and financial products at competitive rates and with the security guarantees now offered by licensed exchanges. Retail investors may find DeFi less accessible due to complex interfaces, high fees and confusing asset custody practices, while sophisticated traders still rely on the liquidity and tools provided by licensed exchanges.
Continued innovation and stabilization of cryptocurrency prices are critical to regaining momentum in the DeFi sector. In the near term, a possible revision of Trump's tariff policy and positive U.S. CPI data next week could contribute to DeFi's recovery through an overall market recovery.
Despite short-term fluctuations, decentralized finance maintains a strong long-term position for investors. DeFi is positioned as a potential source of long-term profitability and relatively stable returns for investors, especially as regulators around the world become more loyal to the integration of blockchain technology and real assets from the traditional world into the business models of financial institutions.
The network's activity will be a "guiding light" for crypto asset trading
"I can't be completely sure at this stage, but I believe quality altcoins where activity is coming back and activity is affecting prices ... we will definitely see a recovery in some of these higher quality projects," Coutts noted.
According to data from Dune Analytics, there were more than 36 million altcoins in existence in January. However, Ethereum still holds a large share of the total blockchain value (TVL) at 55.56%, followed by Solana (6.89%), Bitcoin (5.77%), BNB Smart Chain (5.68%) and Tron (5.54%), according to CoinGecko data.
Coutts said traders should watch where network activity "gravitates" and use that as a "guiding star" for trading crypto assets, adding that he expects the altcoin market to rebound over the next two months.
"I expect altcoins to really start to recover by June, based on the assumption that bitcoin will be back to all-time highs by then."
