DeFi hasn't collapsed, but why has it lost its appeal?

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

Author: Rhythm BlockBeats

Source:

Repost: Mars Finance

Editor’s Note: DeFi has neither stagnated nor collapsed, but it is losing a once crucial element — the “sense of exploration.”

This article reviews the evolution of DeFi from early experimentation to gradual maturity, pointing out that after infrastructure improvements and transaction modes become standardized, on-chain financial participation is converging: yields are now a basic expectation, lending resembles short-term financing, and incentives dominate user behavior. The author does not deny DeFi’s value but instead asks a more difficult question: when efficiency and scale are fully optimized, can DeFi still shape new behaviors, rather than just serve a small existing user base?

Below is the original text:

TL;DR

The ways people use DeFi are becoming highly convergent. The market and infrastructure have matured, but curiosity has been replaced by caution; yields have shifted from “users actively taking risks to earn returns” to “waiting for compensation to be paid,” and participation increasingly revolves around incentives.

The feeling of DeFi is gradually fading. I am not using dramatic language. It hasn’t stopped operating or evolving; what has truly changed is that: you rarely feel like you’re stepping into something genuinely new anymore.

I entered this industry in 2017 (ICO era). Everything back then felt rough, unfinished, and even a bit chaotic. Disorderly, but also open. You would think the rules were temporary, and the next “primitive” could completely reshape the entire ecosystem.

DeFi Summer was the first time this belief became concrete. You weren’t just trading tokens; you were watching how market structures formed in real-time. The new primitives weren’t just simple upgrades but forced you to rethink “what is possible.” Even if systems fail, it still feels like exploration because everything is still in the process of being created.

Today, many DeFi projects seem to just use cleaner execution to repeat the same script. Infrastructure is more mature, interfaces are better, and the patterns are well understood. It remains effective but no longer frequently opens new frontiers, which changes the relationship people have with it.

People are still building, but the behavioral patterns reinforced by DeFi have changed.

DeFi-Optimized Forms

DeFi has become highly speculative because trading was the first demand truly moved onto the chain at scale.

In the early days, traders were the first real “heavy users.” As they flooded in, the system naturally started to adjust around their needs.

Traders valued: choice, speed, leverage, and the ability to exit at any time. They dislike being locked in, dislike relying on discretionary authority. Protocols aligned with these instincts grew rapidly; those requiring users to act differently often needed to be subsidized to compensate for this mismatch.

Over time, this shaped the entire ecosystem’s psychological expectations: participation itself began to be seen as a “behavior that should be compensated,” rather than simply being useful under normal circumstances.

Once this expectation formed, people didn’t “step out” but became more skilled: faster rotation, longer holding of stablecoins, only participating when trading conditions are clearly favorable. This isn’t a moral judgment but a rational response to the environment DeFi creates.

Lending has become financing, not credit

Lending most clearly reflects the gap between DeFi’s narrative and its actual scaling path.

In traditional understanding, lending implies credit, and credit implies time — meaning someone borrows for real needs, and someone is willing to bear the uncertainty over that period.

But in DeFi, truly scaled lending is more like short-term financing. The main borrowers aren’t for “the term” but for positions: leverage, cycles, basis trading, arbitrage, or directional exposure. People borrow not to hold a loan.

Lenders have also adapted to this reality. They no longer act as credit underwriters but more as liquidity providers: valuing exit options, hoping to redeem at face value, and preferring terms that can be sustainably re-priced. When both sides act this way, the market resembles a money market rather than a credit market.

Once the system grows around these preferences, building a genuine credit structure on top becomes extremely difficult. You can add features, but you can’t forcibly change motivations.

Yields become a “basic expectation”

Over time, yields are no longer just returns but a proof of the legitimacy of participation.

On-chain risks include not only price volatility but also contract risk, governance risk, oracle risk, cross-chain risk, and the “unexpected problems” that can arise anywhere. Users gradually learn: bearing these risks should be explicitly compensated.

This is reasonable in itself, but it changes behavior.

Capital doesn’t slowly fall back from high yields to normal yields and continue participating; instead, it exits directly. Users maintain liquidity, waiting for the next “rewarded participation” moment.

The result is: high activity during incentives, rapid decline afterward. It may seem like adoption, but often it’s “rented” behavior.

When participation only occurs within incentive windows, anything aiming for long-term existence becomes difficult to build.

Trust issues

Another fundamental change to the ecosystem is trust.

Years of vulnerabilities, exits, and governance failures have reshaped user psychology. The novelty no longer sparks curiosity but triggers caution. Even mature users enter later, hold smaller positions, and prefer systems that “survive” rather than “are theoretically better.”

This may be healthy, but the culture changes: exploration becomes due diligence, frontier becomes a checklist. The space becomes more serious, and seriousness does not equal charm.

More difficult is that DeFi trains users to demand high compensation for risks while also making them less willing to take on new risks. This compresses the middle ground that past experiments relied on for survival.

Why both sides are “right”

This is precisely where DeFi debates often go wrong.

If you don’t like DeFi, you’re not wrong — it does seem closed and self-referential, many products serve the same small group, and growth has largely depended on incentives.

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

The mistake is pretending these two are originally aimed at the same goal.

DeFi hasn’t failed; it has successfully optimized a small set of intents. This success makes it harder to expand new behavioral patterns outward.

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

How to restore its charm

DeFi won’t regain its charm by recreating DeFi Summer. The frontier moments won’t repeat.

What truly recedes is not innovation but the “feeling that behaviors are still being changed.” When the system no longer reshapes how people use it, only execution efficiency remains, and the sense of exploration disappears.

If DeFi wants to become important again, it must do harder things: build structures that make different types of behaviors rational.

Allow capital to be willing to stay at times; make terms like “duration” understandable and exit-able, rather than burdens to endure; make yields more than just headline numbers, but decisions that can be genuinely underwritten.

Such DeFi would be quieter, grow more slowly, and wouldn’t dominate timelines like in past cycles — but that usually means: usage driven by real needs, not continuous incentives.

I’m even uncertain whether such a transformation is possible without destroying the systems people still rely on. That is the real constraint.

If DeFi doesn’t change “who participation makes sense for,” it cannot expand behavioral boundaries.

Systems that continuously reward speed, choice, and quick exit will only attract users optimizing for those traits.

The path is actually quite clear:

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

If it is willing to bear the cost of shaping a different type of user, then its charm won’t return through hype but through gravity — a silent force that can keep capital even if nothing happens.