Decentralized finance is facing a trust squeeze: a series of theft incidents are continuously eroding the industry's credibility, while at the same time, the wave of traditional financial asset tokenization is rising, which may rewrite the development direction of the entire sector.
Written by: Liam 'Akiba' Wright
Compiled by: Saoirse, Foresight News
The theft incident of KelpDAO's rsETH worth $292 million occurred at a particularly unfavorable time for the DeFi industry. Prior to this, the security vulnerability of Drift Protocol on April 1 and the March blowup of the Venus lending protocol had already severely impacted market confidence. Following this incident, approximately $10 billion in funds were withdrawn from the DeFi sector over the entire weekend.
Multiple overlapping crises make it increasingly difficult for DeFi to avoid its predicaments. Although the open-source decentralized financial system still exists, it is gradually losing its core status as the default entry point for on-chain finance. Stablecoins, tokenized Treasury bonds, and compliant settlement channels are continuously expanding rapidly, while permissionless native protocols continue to suffer from market trust depreciation.
A list of theft incidents from 2026 circulating on social platform X directly reflects the current industry's pessimistic sentiment.
2026 Hacker Rankings (Source: Our Crypto Talk)
Some security incidents have already undergone complete reviews, while some risks continue to ferment, and many events blur the lines between protocol vulnerabilities, cross-chain bridge failures, and user asset theft. This article primarily analyzes the confirmed security incidents of 2026 and the industry landscape changes exposed behind these incidents.
The current industry situation is worlds apart from the peak of DeFi in the summer of 2020 and the bull market of 2021. That brilliance now only exists in memory. At that time, DeFi told the market a story of open, efficient, and composable finance; by 2026, these characteristics still exist but no longer carry the halo and market faith.
Every major hacking incident raises the trust cost for users participating in DeFi. Currently, the fastest-growing and most secure areas of on-chain finance are slowly becoming payment networks, tokenized Treasury bonds, and compliant token products, no longer the complex token ecosystem of native DeFi.
The real test for the industry now lies in whether open-source DeFi can quickly rebuild market trust and maintain its position as the mainstream on-chain entry point. Currently, the entire track is not heading towards extinction, but is in a situation of being squeezed.
The security risks of DeFi have long transcended smart contract vulnerabilities.
After encountering a major hacking incident, the most common misconception is to attribute all incidents to smart contract code vulnerabilities. The event where Drift lost approximately $285 million precisely illustrates that this understanding has become outdated.
Chainalysis, a blockchain data analytics company, disclosed that this attack originated from permission abuse, vulnerabilities in pre-signed operations by administrators, and false collateral assets, rather than simple code statement defects. The market has also realized that a significant amount of risk in DeFi today lurks within governance permissions, signature mechanisms, and operational structures.
This fundamental change alters the underlying objects that users need to trust. Code audits and market-validated contracts remain important, but they cannot cover the entire risk chain: signature nodes, cross-chain bridges, oracles, and market parameter configurations all carry potential risks. When a protocol spans multiple public chains, governance committees, liquidity platforms, and collateral derivatives, the speed of attack surface expansion far outpaces the update speed of decentralized narratives.
The post-event review of the Venus protocol also exposed similar issues, just with different risk forms. Attackers borrowed approximately $14.9 million in assets through inflated collateral values, leaving the protocol with over $2 million in bad debts. Although the causes of the incidents differ from Drift, the conclusion is the same: in the context of weak liquidity and abnormal structural edges, leading DeFi lending platforms remain vulnerable to asset crises.
Following this, KelpDAO faced a sudden explosion. According to CryptoSlate statistics, this vulnerability directly triggered approximately $10 billion in capital flight from the entire DeFi market, forcing all rsETH-related markets to freeze. Even if subsequent market sentiment eases and capital outflow data is adjusted, the signal remains very clear: when faced with cross-chain complexity, collateral uncertainty, and systemic contagion risks, users' first choice is to withdraw their funds.
This trend also aligns with the 2026 security report released by security firm TRM: the vast majority of industry theft losses in 2025 came from infrastructure attacks, surpassing purely smart contract vulnerabilities.
The trust crisis in DeFi is becoming increasingly difficult to isolate because the industry needs to defend not just the code itself, but the entire complex operational system above the code.
On-chain finance continues to grow, but funds have flowed into safer products.
The overall funding landscape does not support the claim of 'total collapse of DeFi.' CryptoSlate's April data shows:
The market cap of USDT has reached $185 billion, while USDC's market cap is $78 billion;
The total amount of stablecoins on the TRON chain is $86.958 billion, and on the Solana chain, it is $15.726 billion.
The Ethereum chain still retains the core liquid funds of native DeFi, while the market shows more signs of concentrated capital migration rather than a complete exit.
The shift of funds towards low-volatility financial products is more noticeable. As of March 12, 2026, the scale of tokenized U.S. Treasury bonds has reached $10.9 billion, with over 55,000 holders.
Users are still utilizing blockchain for settlement and asset rights confirmation, but they are no longer willing to invest assets in complex and high-risk native DeFi projects.
Market differentiation is very clear:
Trust pressure and capital outflow signals:
$292 million was stolen from KelpDAO, triggering an industry-wide capital withdrawal of approximately $10 billion;
Drift's locked amount has halved due to permission vulnerabilities;
Venus exposed risks in lending due to weak liquidity and frequent bad debts.
On-chain growth positive signal:
The total market value of USDT and USDC is approximately $263 billion;
The tokenized U.S. Treasury bonds reached $10.93 billion, with over 55,000 holders;
Visa continues to promote USDC settlements, laying out an institutional-grade stablecoin ecosystem.
Capital is clearly gathering towards products with clear logic, sufficient collateral, and suitable for institutional entry.
Visa's stablecoin strategy report for 2026 is worth noting: its data shows that the total supply of stablecoins increased by over 50% in 2025, growing from $186 billion at the beginning of the year to $274 billion at the end; and it proposed that 2026 will be the first year for institutions to formally layout stablecoins, indicating that the stablecoin track is moving toward mainstream normalization.
The same is true at the settlement level. Visa disclosed that its annualized monthly settlement volume for USDC has surpassed $3.5 billion.
The digital asset itself holds a small share in the overall stablecoin market, but its industry significance is profound: compliant traditional financial infrastructure is connecting to the on-chain network, no longer needing to rely on the entire ecosystem narrative of native DeFi.
Core of industry competition: Who will control the future on-chain infrastructure?
CryptoSlate previously analyzed that compliant institutions are competing for an on-chain capital pool exceeding $330 billion, which includes approximately $317 billion in stablecoins and nearly $13 billion in tokenized Treasury bonds.
These funds continue to seek advantages in high-speed, programmable, 24/7 uninterrupted settlements, and market attention is concentrated on leading assets and basic settlement networks, rather than various niche governance experimental projects.
The gap compared to the bull market cycle of 2021 is particularly obvious.
In past cycles, DeFi simultaneously encompassed underlying infrastructure and terminal products: the source of innovation, high yield origins, and the model of future finance were all concentrated here. By 2026, the future of on-chain finance is being stripped of the chaotic risks of native DeFi and repackaged.
Tokenized funds achieve all-weather circulation and rapid liquidation, while stablecoins handle payment and treasury business; institutions enjoy the advantages of blockchain while firmly controlling compliance, counterparty risks, and market structure.
The CryptoSlate project shutdown report shows that in the first quarter of 2026, over 80 crypto projects have officially ceased operations or entered liquidation processes. Although this is not limited to DeFi, it sufficiently illustrates that capital has exhausted its patience for projects that cannot generate long-term value, stable returns, and real applications.
Cryptocurrency spot ETFs are also part of this major trend. Compliant products continue to attract market capital and attention, as users and institutions prefer infrastructures that can enjoy the advantages of blockchain without bearing the high trust risks of native DeFi.
This also allows native DeFi to retain its unique positioning, although the space has narrowed: open composability and permissionless innovation still hold value, acting as a financial primitive innovation laboratory — before various new models are absorbed and popularized by compliant products, DeFi explores and experiments first.
The core contradiction in the industry remains the pressure on trust.
Native open-source DeFi is losing narrative dominance. If it cannot quickly rebuild trust, optimize its operational structure, and prove the irreplaceability of its complex design, it will gradually lose its position as the entry point for on-chain finance.
The core game of the industry has already become clear: who will take on the next wave of on-chain demand, and currently, safer and compliant on-chain packaged products are taking the upper hand.