DeFi is losing capital, after a month with two major exploits and general distrust in Web3 protocols. Some of the funds are redirected to still viable crypto use cases, especially RWA tokens.
DeFi is shedding capital at an accelerating rate on a mix of technical and financial risks. The exploits of Drift Protocol and Kelp DAO only accelerated the process through DeFi contagion.
In the past week, Sky Protocol, Spark, Morpho, and EtherFi followed Aave, each losing roughly 10% of their total value locked. Recent data shows the Aave outflows continue and are on track to reach $10B, after whales withdrew their large holdings.
Ethereum also lost 10.5% of the value locked in DeFi within a week, with 4% outflows for Solana and 6.3% outflows for Base. Even smaller protocols lost their deposits, with high rates no longer attractive.
Money is leaving DeFi at an unprecedented scale pic.twitter.com/bZ3m40wfs4
— wale.moca 🐳 (@waleswoosh) April 20, 2026
DeFi protocols were seen as one of the viable products in crypto, retaining liquidity and thriving even during bear markets. However, a rush to withdraw funds may undermine the industry and lead to worsening sentiment. The DeFi losses may have ongoing effects on DEX trading, stablecoin usage, and general crypto adoption.
DeFi faces a serious security problem
DeFi faces a serious security problem with multiple vectors of potential exploits. DeFi innovation itself may be threatened, commented Wintermute’s founder Evgeny Gaevoy.
ngl feels pretty bleak for defi innovation at this stage, especially for the composability side as the spillover effects from any hacks go beyond a single protocol
hunker down and critically re-evaluate your security setup is the right approach currently— wishful_cynic (@EvgenyGaevoy) April 20, 2026
The main selling point of DeFi was that protocols were permissionless and free for anyone to use. This also meant exploits and attempts to withdraw funds were only noticed when they were successful, with no other vetting or mandatory waiting periods.
The permissionless nature of DeFi has led to the latest significant hacks, happening just as protocols rebuilt their liquidity. After the 2022 market crash, DeFi took years to rebuild value locked and regain trust. The current fund outflows suggest the sector may not see the same liquidity return quickly.
Liquidity shifts to RWA
Tokenized real-world assets are still a growing narrative, with constant liquidity inflows. US Treasury debt is the most prominent tokenized asset, which often sits at the center of many low-risk DeFi protocols.
As users abandon risky vaults, the yield from treasuries may be more secure and appealing. Tokenized commodities are also setting new records for value locked and general trading activity.
In April, tokenized real-world assets broke above the $30B milestone, led by bonds and commodities. Around $13.88 was held in tokenized US Government debt.
RWA allows the inflow of external value instead of relying on often circular, highly interdependent DeFi valuations. DeFi users have also commented that some yields are relatively low, but still have a high risk of exploits, and traditional interest rates may become more appealing.
RWA assets are a compromise, allowing users to get on-chain exposure to stocks and bonds. However, for users in regulated markets, the advantages of DeFi are also disappearing.
