DeFi Hasn't Collapsed, So Why Has It Lost Its Allure?

Original Article Title: DeFi Has Lost Its Charm
Original Article Author: @0xPrince
Translation: Peggy, BlockBeats

Editor's Note: DeFi has not stagnated or collapsed, but it is losing something that was once very important to it - the sense of "exploration".

This article reviews the evolution of DeFi from early exploration to gradual maturity, pointing out that after the improvement of infrastructure and the solidification of trading patterns, the participation in on-chain finance is becoming more homogeneous: yield has become a basic expectation, lending is more like short-term financing, and incentives have dominated user behavior. The author does not deny the value of DeFi, but rather poses a more difficult question: after efficiency and scale have been fully optimized, can DeFi still shape new behaviors, rather than just serving the existing small fraction of users?

Below is the original text:

TL;DR

The way people are using DeFi is becoming highly homogeneous. The market and infrastructure have matured, but curiosity has been replaced by caution; yield has shifted from "returns earned by users actively taking risks" to "compensation waiting to be paid", and participation is increasingly centered around incentives.

The feeling that DeFi gives is slowly fading. I am not expressing this in a dramatic way. It has not stopped running, nor has it stopped evolving. What has truly changed is: you rarely feel like you are entering something truly brand new.

I entered this industry in 2017 (during the ICO era). Everything seemed rough, unfinished, and even a bit out of control at that time. Chaotic, but also open. You would feel that the rules were temporary, and the next "primitive concept" might completely reshape the entire ecosystem.

DeFi Summer was the first time this belief became concrete. You were not just trading tokens, but witnessing in real time how the market structure was taking shape. The new primitive concept was not a simple upgrade, but something that forced you to rethink "what is possible". Even if the system would fail, it still felt like exploration, because everything was still emerging.

Today, many DeFi projects seem to be just repeating the same playbook in a cleaner execution. The infrastructure is more mature, the interfaces are better, and the patterns have long been understood. It is still effective, but no longer frequently opens up new frontiers, altering people's relationship with it.

People are still building, but the behavior patterns strengthened by DeFi have changed.

The Form Optimized by DeFi

The reason DeFi has become highly speculative is because trading was the first demand to be truly moved to the chain at scale.

Early on, traders were the first true "power users." As they flooded in, the system naturally began to adjust around their needs.

Traders value: optionality, speed, leverage, and the ability to exit at any time. They dislike being locked in, dislike the risk of relying on others' discretion. Protocols aligned with these instincts grew rapidly; protocols that required users to act in different ways, even if they could function, often needed to be "subsidized" to make up for this mismatch.

Over time, this shaped the entire ecosystem's psychological expectation: participation itself began to be seen as a "behavior that should be rewarded," rather than because the product is useful under normal circumstances.

Once this expectation is set, people do not "walk away," they only become more adept: rotating faster, holding stablecoins longer, only appearing when trading conditions are clearly favorable. This is not a moral judgment, but a rational response to the environment created by DeFi.

Lending has become Funding, not Credit

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

In the traditional sense, lending meant credit, and credit meant time—meant someone borrowing for a real need, also meant someone willing to bear the uncertainty of that time period.

But in DeFi, what has truly scaled is more like short-term funding. The primary borrowers are not for the "term," but for the position: leverage, looping, basis trading, arbitrage, or directional exposure. People borrow not to hold a loan.

Lenders have also adapted to this reality. They are no longer like credit underwriters, but more like liquidity providers: valuing the exit, looking to redeem at face value, preferring terms that can sustain repricing. When both parties act like this, the market becomes more like a money market than a credit market.

Once the system grows around this preference, it becomes extremely difficult to build a true credit structure on top of it. You can add features, but you can't forcibly change incentives.

Yield has become a "Basic Expectation"

Over time, yield is no longer just a return, but has become a proof of legitimacy of participation.

On-chain risk is not just price fluctuation, but also includes contract risk, governance risk, oracle risk, cross-chain risk, and the uncertainty of "there's always something unexpected that can go wrong." Users gradually learn: to take on these risks, they should be clearly compensated.

This, in itself, is reasonable, but it changes behavior.

Capital doesn't slowly flow back from high yields to normal yields and stay engaged; it exits directly. Users maintain liquidity, waiting for the next "rewarded-for-participation-again" moment.

The result: too much intensity, not enough continuity. Activity spikes at the start of incentives and rapidly fades post-incentive. What seems like adoption is often actually "rented behavior."

When participation only emerges within incentive windows, anything meant to be long-lasting becomes challenging to build.

Trust Issue

Another aspect that fundamentally reshapes the ecosystem is trust.

Years of exploits, rug pulls, and governance failures have reshaped user psychology. Novelty no longer piques curiosity; it triggers wariness. Even mature users enter later, with smaller positions, preferring systems that "survive" rather than ones that are "theoretically better."

Perhaps this is healthy, but culture changes along with it: exploration turns into due diligence, cutting-edge becomes a checklist. The space has grown more serious, yet seriousness does not equate to charm.

More challenging is this: DeFi trains users to seek high rewards for risk, yet it also makes them more reluctant to take on new risks. This squeezes the middle ground where past experiments thrived.

Why Both Sides "Make Sense"

This is where the DeFi debate often misaligns.

If you don't like DeFi, you are not wrong—it does appear closed-looped and self-referential, with many products serving the same few, with historical growth highly reliant on incentives.

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

The mistake is pretending these were always the same target.

DeFi has not failed; it has successfully optimized for a small set of intentions. It's this very success that makes expanding into new patterns of behavior more challenging.

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

How Charm Returns

DeFi will not regain its charm by re-enacting DeFi Summer. The frontier moment won't repeat.

What has truly faded is not innovation but the feeling that "behavior is still being transformed." When a system no longer reshapes how people use it, leaving only operational efficiency, the sense of exploration vanishes.

If DeFi wants to become relevant again, it has to do the harder thing: build structures that make different kinds of behavior rational.

Make capital willing to stay at certain times; make deadlines an understandable, exitable option rather than a begrudging burden; make yields not just headline numbers, but decisions that can actually be underwritten.

That kind of DeFi will be quieter, grow more slowly, and not dominate the timeline as in past cycles — but that usually means usage is driven by real demand, not continuous incentives.

I'm not even sure a transition like this is possible without breaking the systems people still rely on. That's the real constraint.

DeFi can't expand the boundaries of behavior if it doesn't change "who participation is meaningful for".

A system of ongoing rewards, choice, and quick exits will only continue to attract users who optimize for those traits.

The path is actually quite clear:

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

If it's willing to pay the cost to shape a different kind of user, then the allure won't return in a hype form, but in a gravity form — a silent force that keeps capital even when nothing is happening.

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