Main Points：
- Dramatic Liquidity Decline: According to a recent report by research firm Decentralised, average liquidity in the DeFi market has plummeted by 99.7% – from approximately $1.8 million in 2021 to about $5,500 as of March 2025.
- Token Overload and Capital Dilution: With over 40 million different tokens issued, limited capital and stagnant user demand have forced scarce funds to spread thinly across countless projects, leading to severely diluted liquidity.
- Zero-Sum Crypto Capital Allocation: The report highlights a “zero-sum” effect in crypto capital allocation, where new fund inflows are failing to sustain the explosive growth of new tokens.
- Short-Lived Hype and Airdrop Limitations: Temporary boosts from Discord launches and airdrops, popular around 2021, are proving ineffective for long-term user engagement.
- Mature Protocols Leading the Way: In contrast, established DeFi protocols like Aave and Uniswap are showing resilience by maintaining stable revenue, decentralized governance, and using token buybacks to return value.
- Categorizing DeFi Projects: The report suggests that projects should be classified into four tiers—Explorer, Climber, Titan, and Seasonal—to adopt capital strategies suited to their stage, with Titan-level projects better positioned to pursue “shareholder return” strategies.
1. DeFi: A Market Overwhelmed by a Proliferation of Tokens
The decentralized finance (DeFi) market is currently facing an unprecedented crisis. Once celebrated for its vibrant ecosystem and innovative potential, the space is now struggling under the weight of an overwhelming number of tokens. According to the latest report by Decentralised, average liquidity per asset has collapsed from about $1.8 million in 2021 to roughly $5,500 as of March 2025—a staggering 99.7% drop.
This dramatic reduction is largely due to an explosion in the number of tokens; over 40 million different tokens have been issued. However, the total capital and user demand did not grow in parallel. With new funds unable to keep pace, limited capital is being spread too thinly among a myriad of projects, leaving most tokens with dangerously low liquidity. The phenomenon is being termed “zero-sum crypto capital allocation,” where despite the continual creation of new tokens, insufficient new money flows into the market, drastically reducing individual project liquidity and user engagement.
2. The Downside of Ephemeral Hype: Airdrops and Discord Launches
The report also criticizes tactics that once drove temporary market enthusiasm—such as Discord community launches and airdrops. In 2021, these methods created a surge in interest and engagement; however, their effect has proven to be short-lived. Airdrops, in particular, have not translated into sustained user involvement or long-term adoption. Instead, they offer only fleeting moments of excitement without building the robust foundations needed for lasting success.
For the DeFi market to recover, it will require more than just speculative hype. True, sustainable value must come from real demand, continuous revenue generation, and innovative use cases that attract and retain users over time.
3. The Resilience of Mature Protocols
In contrast to the volatile and speculative projects, established DeFi protocols like Aave and Uniswap have demonstrated their resilience. These platforms have maintained stable revenue streams and built self-governing, decentralized communities. Through practices such as token buybacks and burns, they actively work to return value to their users and investors.
Their success signals the importance of economic utility and a robust operational foundation. While many newer projects struggle with diluted liquidity and diminishing user engagement, these mature protocols have shown that a focus on sustainable growth and practical financial services is key to thriving in the long run.
4. A Tiered Approach: Classifying DeFi Projects for Capital Strategy
The Decentralised report goes further by recommending a categorization of DeFi projects into four groups—Explorer, Climber, Titan, and Seasonal—each requiring different capital strategies:
- Explorer: Early-stage projects that are in their nascent phase. Their focus should be on reinvesting any revenue to build a solid operational base.
- Climber: Projects that are in a growth phase and need to strengthen their infrastructure to scale.
- Titan: Mature projects with significant revenue and reserves. These are best positioned to implement token buybacks and “shareholder return” strategies, thereby increasing token value.
- Seasonal: Projects that exhibit temporary bursts of activity and may require a different approach depending on market cycles.
This tiered framework underscores that not all projects are created equal. Only those with a strong economic model and sustainable fundamentals—the Titans—are likely to emerge as long-term winners in an increasingly competitive and over-saturated market.
5. A Critical Crossroads for DeFi
The DeFi market is at a critical juncture. With average liquidity plunging by over 99%, the proliferation of tokens has led to a situation where scarce capital is spread so thin that even promising projects struggle to maintain engagement. Temporary hype tactics like airdrops and Discord launches, once the lifeblood of early-stage enthusiasm, are no longer sufficient to drive lasting growth.
However, this painful market correction may be exactly what is needed to cleanse the ecosystem. As speculative projects are weeded out, only those with genuine utility, robust revenue models, and strong liquidity will survive. Established protocols like Aave and Uniswap are already paving the way, demonstrating that sustainable growth and decentralized governance are achievable.
For investors, developers, and market participants alike, this period of crisis is both a challenge and an opportunity—a necessary trial that could ultimately lead to a more mature, stable, and sustainable DeFi ecosystem. By adopting differentiated capital strategies based on project maturity, the DeFi market can evolve from a fragmented, speculative playground into a consolidated financial system that truly delivers long-term value.
