Frequent security incidents become a "fatal flaw"! JPMorgan: DeFi may struggle to gain institutional favor

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While the vision of Decentralized Finance (DeFi) is ambitious, frequent security incidents have become a key bottleneck for industry expansion. In a recent report, JPMorgan Chase pointed out that due to endless security vulnerabilities and stagnant growth in Total Value Locked (TVL), the appeal of DeFi to institutional investors continues to decline. TVL is a core metric for measuring the scale, usage, and overall health of the DeFi ecosystem, representing the total value of crypto assets deposited by users into protocols. JPMorgan Chase noted that the recent Kelp DAO hack wiped out approximately $20 billion in TVL within just a few days, fully exposing the structural risks of DeFi. A single breach triggers a chain reaction In this attack that shocked the crypto space, hackers targeted a cross-chain bridge vulnerability, minting $292 million worth of unbacked rsETH tokens out of thin air. They then used these as collateral to drain funds from lending protocols, ultimately leaving behind over $200 million in bad debt. The storm spread rapidly, affecting even platforms that were not directly hacked. JPMorgan Chase analyst Nikolaos Panigirtzoglou stated: "Just as traditional investors turn to cash during turbulent times, cryptocurrency participants are fleeing to stablecoins as a safe haven in the face of recent security incidents." The fatal cost of trusting "code" Hacker attacks and protocol vulnerabilities have always been the most fatal risks for cryptocurrency, as they directly shake the trust foundation of "code is law." In systems that do not rely on intermediaries, smart contract vulnerabilities, phishing attacks, or design flaws in cross-chain bridges leave massive amounts of locked funds directly exposed to risk. Hackers often only need to find one weak link to easily make off with huge sums of money. The report points out that the complexity and high interconnectivity of blockchain infrastructure have instead amplified these weaknesses. Taking cross-chain bridges as an example, while they have greatly expanded the convenience of capital flow, they have also expanded the "attack surface" for hackers. Due to their complex design and reliance on shared infrastructure, once verification mechanisms fail, it often results in billions of dollars in losses. In addition to direct financial losses, the succession of security scandals has severely damaged market confidence. JPMorgan Chase noted that every major hack could lead to the loss of users and institutions, invite stricter regulation, and further drag down the pace of DeFi adoption. It can be said that "security" has become the most difficult threshold to cross on the path of cryptocurrency growth. Analysts mentioned that although the DeFi space has made progress in smart contract auditing, underlying infrastructure and cross-chain bridges remain the most vulnerable breaches, causing losses from hacker attacks to expand rapidly this year, reaching levels comparable to the entirety of 2025. Growth momentum stalls, capital flocks to USDT for refuge On the other hand, DeFi's growth momentum appears weak. Although TVL denominated in USD has rebounded with the rise in coin prices, the overall scale remains almost stagnant when denominated in ETH. This indicates that the DeFi ecosystem lacks true endogenous growth, leading outsiders to question whether the industry has the capacity to carry large-scale institutional capital. The report concludes by observing that when market pressure rises, investors quickly withdraw funds from DeFi lending protocols and flock to USDT, which has deeper liquidity and more mature off-ramping channels. This further consolidates USDT's status as a safe haven during crypto market turmoil, but it also reflects investors' concerns about the long-term stability of DeFi protocols.

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