Breaking! DeFi trust collapses, billions of dollars rush to escape, is the "throne" of on-chain finance being taken over by compliant products?

Six years have passed since the frenzy known as the “DeFi Summer.” Today, decentralized finance is facing a severe trust squeeze. A series of theft incidents continue to erode industry credibility, while on the other side, the wave of tokenization of traditional financial assets is surging, potentially rewriting the future of this track.

The $292M worth of rsETH stolen at a bad time for the industry. Previously, the $DRIFT protocol suffered a security breach in early April, and in March, the $Venus lending protocol collapsed, severely damaging market confidence. After this incident, approximately $10 billion in funds withdrew from the DeFi space over the weekend. Multiple crises stacking up make the predicament unavoidable.

Although the open-source system is still operational, it is gradually losing its core position as the default on-chain financial gateway. Stablecoins, tokenized government bonds, and compliant settlement channels are expanding rapidly, while permissionless native protocols continue to suffer from market trust discounts. A circulating list of “theft incidents in 2026” on social platforms vividly reflects this pessimism.

Some incidents have been fully reviewed, some risks are still fermenting, and many events blur the lines between protocol vulnerabilities, cross-chain bridge failures, and user asset theft. The current industry situation is vastly different from the peak in 2020 and the bull market in 2021. Back then, DeFi told stories of open, efficient, composable finance; by 2026, these qualities still exist but no longer carry their original halo and faith.

Every major token theft raises the barrier to user participation. The fastest-growing and most secure on-chain financial sectors are shifting toward payment networks, tokenized government bonds, and compliant products, rather than the complex native DeFi token ecosystems. The real test is: can open-source DeFi quickly rebuild trust and maintain its position as a mainstream gateway? Currently, the track is not dying but being squeezed.

The security risks of DeFi have long gone beyond smart contract vulnerabilities. Attributing all incidents to code flaws is an outdated view. The $DRIFT protocol loss of about $285 million proves that attacks stem from permission abuse, administrator pre-signed operation vulnerabilities, and false collateral assets.

This has made the market realize that many risks are hidden in governance permissions, signature mechanisms, and operational architectures. This fundamental change alters the underlying objects that users need to trust. Code audits remain important but cannot cover the entire risk chain: signature nodes, cross-chain bridges, oracles, and market parameter configurations can all become hazards.

When protocols span multiple blockchains and involve governance committees, liquidity platforms, and collateralized derivatives, the attack surface expands much faster than the pace of updates in decentralized narratives. The post-mortem of the $Venus protocol also exposed similar issues, just in different forms. Attackers used inflated asset values to borrow and extract about $14.9 million, leaving over $2 million in bad debt for the protocol.

The conclusion aligns with the $DRIFT incident: in environments with weak liquidity and structurally abnormal edges, leading lending platforms remain vulnerable. Soon after, rsETH experienced a sudden collapse. Market data shows this vulnerability directly triggered a withdrawal of about $10 billion from the entire DeFi market, forcing all related markets to freeze.

Even if subsequent sentiment eases and fund outflow data is corrected, the signals remain clear: when users face cross-chain complexity, collateral uncertainties, and systemic contagion risks, their first choice is to withdraw. This trend also aligns with the 2026 report from security agencies: in 2025, most theft losses in the industry came from infrastructure attacks, surpassing simple smart contract vulnerabilities.

The trust crisis in DeFi is becoming increasingly difficult to contain because the defense is no longer just about code but about the entire complex operational system built on top of it. However, the overall capital landscape does not support the idea of a “total collapse of DeFi.” Data from April shows: the market cap of $USDT has reached $185 billion, and $USDC’s market cap is $78 billion.

The total stablecoin amount on the Tron chain is $86.96B, and on the Solana chain, $15.73B. The native DeFi core funds on Ethereum still remain, with market activity more about capital migration than full exit. The shift toward low-volatility financial products is more evident.

As of March 12, 2026, the tokenized US Treasury bonds reached $10.9 billion, held by over 55k users. Users continue to settle and verify assets on the blockchain but are no longer willing to invest in complex, high-risk native projects. Market segmentation is very clear.

Signals of trust pressure and capital outflows include: the $rsETH theft triggering a $10 billion withdrawal; $DRIFT locking volume halved due to permission vulnerabilities; and $Venus exposing liquidity risks. On-chain growth positive signals are: the combined market cap of $USDT and $USDC around $263 billion; tokenized US Treasury bonds at $10.93 billion; and Visa’s ongoing promotion of $USDC settlement and institutional stablecoin ecosystem deployment.

Capital is clearly moving toward products with clear logic, sufficient collateral, and institutional compatibility. In Visa’s 2026 stablecoin strategy report, it states that the total stablecoin supply increased by over 50% in 2025, and 2026 will be the year for institutional deployment. In settlement, the monthly $USDC settlement volume has exceeded an annualized scale of $3.5 billion.

While the proportion of digital assets is small, its significance is profound: compliant traditional financial infrastructure is directly integrating with on-chain networks, no longer relying on the entire native DeFi ecosystem narrative. The core of industry competition is: who will control the future on-chain infrastructure.

Some analysts point out that compliant institutions are vying for over $330 billion in on-chain funds, including about $317 billion in stablecoins and nearly $13 billion in tokenized government bonds. These funds continue to pursue advantages like high-speed, programmable, 24/7 settlement, with market attention focused on leading assets and foundational settlement networks rather than niche governance experiments.

Compared to the 2021 bull market, the gap is obvious. In previous cycles, DeFi encompassed both infrastructure and end-user products: innovation hubs, high-yield sources, and models for future finance all concentrated here. By 2026, the future of on-chain finance is being stripped of the chaos and risks of native DeFi and repackaged.

Tokenized funds enable round-the-clock circulation, stablecoins handle payments and treasury operations; institutions enjoy blockchain advantages while tightly controlling compliance, counterparty risk, and market structure. In Q1 2026, over 80 crypto projects have officially shut down or entered liquidation.

Although not limited to DeFi, this trend clearly shows: capital has run out of patience for projects that cannot generate long-term value, stable returns, or real-world applications. The same trend applies to crypto spot ETFs. Compliant products continue to attract market funds and attention, with users and institutions preferring infrastructure that combines blockchain benefits with lower trust risks than native DeFi.

This also preserves native DeFi’s positioning, though space is narrowing: open composability and permissionless innovation still hold value as a laboratory for financial primitives—DeFi leads the exploration and trial-and-error before various new models are absorbed and popularized by compliant products. The core contradiction remains trust squeeze.

Native open-source DeFi is losing narrative dominance. If it cannot quickly rebuild trust, optimize operational architecture, and demonstrate the irreplaceability of its complex design, it will gradually lose its position as the on-chain financial gateway. The industry’s core game is now clear: who will take on the next wave of on-chain demand? Currently, safer, compliant on-chain packaged products are gaining the upper hand.

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