DeFi has not collapsed, but why has it lost its appeal - ChainCatcher

Original Title: DeFi Has Lost Its Charm

Original Author: @0xPrince

Original Compilation: Peggy, BlockBeats

Editor’s Note: DeFi has neither stagnated nor collapsed, but it is losing a once most important element — the sense of exploration.

This article reviews the evolution of DeFi from early exploration to gradual maturity, pointing out that after infrastructure has been improved and trading modes have been solidified, on-chain financial participation methods are converging: yields have become the basic expectation, lending is more like short-term financing, and incentives dominate user behavior. The author does not deny the value of DeFi but instead asks a more difficult question: when efficiency and scale are fully optimized, can DeFi still shape new behaviors, rather than just serve a small existing user base?

Below is the original text:

TL;DR

People’s ways of using DeFi are becoming highly convergent. The market and infrastructure have matured, but curiosity has been replaced by caution; yields have shifted from “users actively taking risks to earn returns” to “waiting for compensation to be paid,” and participation increasingly revolves around incentives.

The feeling that DeFi gives is gradually fading. I am not using a dramatic tone. It has not stopped operating, nor has it stopped evolving. What has truly changed is: you rarely feel like you are stepping into something genuinely new.

I entered this industry in 2017 (ICO era). Everything back then seemed rough, unfinished, and even a bit out of control. Chaotic, but also open. You would think the rules were temporary, and the next “primitive” could completely reshape the entire ecosystem.

DeFi Summer was the first time this belief became concrete. You weren’t just trading tokens; you were witnessing how market structures formed in real-time. The new primitives weren’t just simple upgrades but forced you to rethink “what is possible.” Even if systems fail, it still feels like exploration because everything is still in the process of being generated.

Today, many DeFi projects seem to just use cleaner execution to repeat the same script. Infrastructure is more mature, interfaces are better, and the patterns are well understood. It remains effective but no longer frequently opens new frontiers, which changes the relationship people have with it.

People are still building, but the behavioral patterns that DeFi reinforces have already changed.

The Optimized Forms of DeFi

DeFi has become highly speculative because trading was the first demand truly moved onto the chain at scale.

In the early days, traders were the first real “heavy users.” When they flooded in, the system naturally started to adjust around their needs.

Traders value: choice, speed, leverage, and the ability to exit at any time. They dislike being locked in, dislike relying on discretionary authority. Protocols aligned with these instincts grew rapidly; protocols requiring users to act differently, even if operational, often need to be subsidized to compensate for this mismatch.

Over time, this shaped the entire ecosystem’s psychological expectations: participation itself began to be seen as a “behavior that should be compensated,” rather than simply being useful under normal circumstances.

Once this expectation is formed, people don’t “step out,” they just become more skilled: faster rotation, longer holding of stablecoins, only participating when trading conditions are clearly favorable. This is not a moral judgment but a rational response to the environment DeFi creates.

Lending Becomes Financing, Not Credit

Lending most clearly reflects the gap between DeFi’s narrative and its actual path to scale.

In traditional understanding, lending implies credit, and credit implies time — meaning someone borrows for real needs, and someone is willing to bear the uncertainty over that period.

But in DeFi, truly scaled lending is more like short-term financing. The main borrowers aren’t for “maturity,” but for positions: leverage, cycles, basis trading, arbitrage, or directional exposure. People borrow not to hold a loan.

Lenders have also adapted to this reality. They no longer act as credit underwriters but more like liquidity providers: valuing exit options, hoping to redeem at face value, and preferring terms that can be sustainably re-priced. When both sides act this way, the market resembles a money market rather than a credit market.

Once the system grows around these preferences, it becomes extremely difficult to build genuine credit structures on top. You can add features, but you cannot forcibly change motivations.

Yields Become a “Basic Expectation”

Over time, yields are no longer just returns but a proof of legitimacy for participation.

On-chain risks include not only price volatility but also contract risk, governance risk, oracle risk, cross-chain risk, and the “things you didn’t think could go wrong.” Users gradually learn: bearing these risks should be explicitly compensated.

This is reasonable in itself, but it changes behavior.

Capital does not slowly revert from high yields to normal yields and continue participating; it exits directly. Users maintain liquidity, waiting for the next “rewarded participation” moment.

The result is: high intensity but low continuity. Incentives cause activity to surge when active, then quickly fade after incentives end. It often appears to be adoption but is actually “rented behavior.”

When participation only appears within incentive windows, anything that aims to exist long-term becomes difficult to build.

Trust Issues

Another factor that completely changes the ecosystem is trust.

Years of vulnerabilities, rug pulls, and governance failures have reshaped user psychology. Freshness no longer sparks curiosity but triggers caution. Even mature users enter later, hold smaller positions, and prefer systems that “survive,” rather than “theoretically better” systems.

This may be healthy, but the culture changes: exploration turns into due diligence, frontier projects into checklists. The space becomes more serious, but seriousness does not equal charm.

More difficult is: DeFi trains users to demand high compensation for risks while making them less willing to take on new risks. This compresses the middle ground that past experiments relied on for survival.

Why Both Sides Are “Reasonable”

This is precisely where DeFi debates often go wrong.

If you don’t like DeFi, you’re not wrong — it does seem closed and self-referential, many products serve the same small group, and growth largely depends on incentives.

If you still believe in DeFi, you’re not wrong either — permissionless access, global liquidity, composability, and open markets remain powerful ideas.

The mistake is pretending these two are originally aimed at the same goal.

DeFi has not failed; it has successfully optimized a small set of intents. It is this success that makes it harder to expand new behavioral models outward.

Whether you see this as progress or stagnation depends entirely on what you initially expected DeFi to become.

How to Regain Its Charm

DeFi will not regain its charm by recreating DeFi Summer. The frontier moments will not repeat.

What truly recedes is not innovation but the “feeling that behaviors are still being changed.” When the system no longer reshapes how people use it, only execution efficiency remains, and the sense of exploration disappears.

If DeFi wants to become important again, it must do harder things: build structures that make different types of behaviors rational.

Let capital be willing to stay at times; let maturities be understandable and exit-able choices, not burdens to endure; let yields no longer be just headline numbers but decisions that can be genuinely underwritten.

Such DeFi will be quieter, grow more slowly, and will not occupy the timeline like past cycles — but this usually means: usage driven by real needs, not continuous incentives.

I am not even sure whether this transformation is possible without destroying the systems people still rely on. That is the real constraint.

If DeFi does not change “whose participation makes sense,” it cannot expand behavioral boundaries.

Systems that continue to reward speed, choice, and quick exit will only attract users who optimize for these traits.

The path is actually quite clear:

If DeFi continues to reward the behaviors it has already optimized, it will always be highly liquid but also forever niche;

If it is willing to bear the cost of shaping a different type of user, then its charm will not return through hype but through gravity — a silent force that can keep capital even if nothing happens.