• About Us
  • Careers
  • Contact
No Result
View All Result
Thursday, June 5, 2025
DeFi Planet
  • News
    • People
    • Business
    • Crime
    • Regulation
    • Crypto
    • CBDC
  • Markets
    • Bitcoin
    • Ethereum
    • Stablecoins
    • Altcoins
    • Crypto ETFs
    • Memecoins
  • Policy
  • Articles
    • Press Releases
    • Opinion
    • Explainers
    • Guest Post
    • Sponsored
  • Directory
    • Companies
    • People
    • Products
    • Wallets
  • Multimedia
    • Videos
    • Podcasts
  • Learn
    • DeFi Basics
    • Tutorials
    • Reviews
    • Blockchain Fundamentals
  • Research
    • Case Studies
  • Explore
    • DeFi
    • Crypto Gaming
    • NFT
    • DAO
    • Metaverses
  • Jobs
  • Markets Pro
    • DeFi Planet Pro
    • Spend Crypto
    • Swap Crypto
    • Coin Prices
    • Crypto Exchanges
    • Crypto Analyzer
  • News
    • People
    • Business
    • Crime
    • Regulation
    • Crypto
    • CBDC
  • Markets
    • Bitcoin
    • Ethereum
    • Stablecoins
    • Altcoins
    • Crypto ETFs
    • Memecoins
  • Policy
  • Articles
    • Press Releases
    • Opinion
    • Explainers
    • Guest Post
    • Sponsored
  • Directory
    • Companies
    • People
    • Products
    • Wallets
  • Multimedia
    • Videos
    • Podcasts
  • Learn
    • DeFi Basics
    • Tutorials
    • Reviews
    • Blockchain Fundamentals
  • Research
    • Case Studies
  • Explore
    • DeFi
    • Crypto Gaming
    • NFT
    • DAO
    • Metaverses
  • Jobs
  • Markets Pro
    • DeFi Planet Pro
    • Spend Crypto
    • Swap Crypto
    • Coin Prices
    • Crypto Exchanges
    • Crypto Analyzer
No Result
View All Result
DeFi Planet
No Result
View All Result

Why Most DeFi Projects Fail (And What Needs to Change)

15 May 2025
in Articles, Opinion
Reading Time: 8 mins read
107 3
Home Articles

Contents

Toggle
  • Why Most DeFi Projects Fail
    • 1. Flawed Tokenomics: When Free Money Isn’t Really Free
    • 2. Security Risks
    • 3. Lack of Real Utility: Speculation Over Substance
    • 4. Malicious Intent: Some Projects Were Never Meant to Last
  • What Needs to Change?
    • Better tokenomics and economic models must become the standard. 
    • Security must become a priority, not an afterthought. 
    • More transparency is needed to reduce fraud and rug pulls. 
    • Regulatory clarity must improve. 
    • The industry must focus on real-world use cases rather than speculation-driven projects. 
  • The Future of DeFi: Boom, Bust, or Breakthrough?

Last updated on May 27th, 2025 at 07:48 am

The DeFi space is full of incredible success stories—but also spectacular failures. Some projects launch with big promises, attract millions in investment, and then vanish without a trace. Others seem unstoppable until a single flaw brings them crashing down. This industry has seen it all.

The general wisdom is that roughly 90% of startups fail across all industries, and DeFi is no exception. But unlike other sectors, when a DeFi project collapses, it can take millions—or even billions—of dollars with it. Investors in DeFi aren’t deep-pocketed venture capitalists who hedge risk across portfolios. Many are retail participants who can’t afford to absorb heavy losses or spread capital thinly across diverse sources.

Now combine crypto’s extreme volatility with DeFi’s experimental design, and you get a level of risk most everyday investors can’t stomach.

DeFi was supposed to rewrite the rules—no banks, no middlemen, just decentralized financial freedom. And for a while, it worked. Between 2020 and 2022, total value locked (TVL) in DeFi exploded from under $1 billion to over $100 billion. Investors were throwing money at anything with a “DeFi” label, and developers were launching projects at lightning speed, hoping to cash in on the frenzy.

DeFi TVL from 2020-2022. Source: Defilama

But in the rush to build and capture hype, long-term sustainability was often overlooked. It turns out, just because a project has a fancy whitepaper and a token with a cool name doesn’t mean it’s built to last.

Why Most DeFi Projects Fail

1. Flawed Tokenomics: When Free Money Isn’t Really Free

Ever heard the phrase “too good to be true”? That’s exactly what happened with failed DeFi projects that promised sky-high yields to attract users. To get people excited, they offered insanely high Annual Percentage Yields (APYs), sometimes in the thousands of percent, but there was a catch. These rewards were often paid out in freshly minted tokens, which meant that instead of growing in value, the token supply kept inflating like a balloon about to pop.

Many projects are built on unsustainable ponzinomics backed by inflationary tokens.

It’s important to identify projects with TRUE revenue sources, where much of that revenue goes to token holders (i.e – you).

— Shiv (@shivsakhuja) May 29, 2022

This unsustainable approach has led to numerous DeFi project failures, where early investors profit at the expense of those who join later, creating a cycle that inevitably collapses.

Without a sustainable revenue model, even the most exciting DeFi projects can turn into failed projects overnight. 

2. Security Risks

DeFi runs on smart contracts. While this is a revolutionary solution (because what’s better than no middlemen and no human error), there’s a major downside—one tiny flaw in the code can lead to catastrophic financial losses. It is one of these reasons hackers have made the sector their playground. 

Take Yam Finance, for example. It launched in 2020 with an innovative rebasing mechanism (essentially an automated way to adjust supply), but a single coding error caused its collapse within days. The project’s governance model failed, and billions in potential value disappeared overnight. 

Yam isn’t an isolated case. According to Chainalysis, hackers stole over $3.1 billion from DeFi protocols in 2022 alone. The attack surface is large, and the stakes are high.

Total Value Stolen in Crypto Hacks from 2016-2023. Source: Chainalysi

3. Lack of Real Utility: Speculation Over Substance

Many DeFi projects sound cool on paper, but when you dig deeper, you realize they don’t really do anything useful.

Instead of solving real problems, many projects exist just to pump their own tokens. They rely on new investors coming in, which works for a while—until the hype dies down and the whole thing crumbles. If a project’s main selling point is “number go up,” it’s probably doomed. 

Worse, the space is flooded with copycat protocols—clones of existing platforms offering nothing new except a different logo and a promise of 10,000% APY. Real, successful DeFi projects solve problems. 

4. Malicious Intent: Some Projects Were Never Meant to Last

Somehow, we can trace all the reasons mentioned above to a singular truth: the motive behind instituting the project itself. While some projects start with genuine vision but collapse due to poor execution, others are conceived with bad faith from day one.

Rug pulls aren’t accidents. They’re often planned from the start. The decentralized and trustless nature of DeFi is supposed to be its security feature, but some take advantage of it for their own desires, especially because they know they can exploit the system without facing immediate consequences.

However, the problem is deeper than just financial loss. These scams damage trust across the entire ecosystem. Each one reinforces public scepticism, making it harder for legitimate builders to gain traction. 

RELATED: Crypto Scams Are Never Going Away. Here is Why

What Needs to Change?

If DeFi is to move beyond speculation and short-term hype, fundamental shifts are needed—shifts that prioritize security, sustainability, and real-world utility over quick profits. While decentralization remains a core principle, it can’t come at the expense of accountability and investor protection.

Better tokenomics and economic models must become the standard. 

Projects that rely on inflationary rewards and unsustainable APYs will always collapse under their own weight. Instead of promising unrealistic returns, DeFi protocols need to design tokenomics that encourage long-term growth, actual utility, and value creation. This means tying token value to real-world use cases, limiting unnecessary inflation, and ensuring that incentives align with the long-term health of the ecosystem rather than short-term speculation. 

MakerDAO is an example of a project that successfully implements a sustainable economic model. By introducing DAI, a decentralized stablecoin backed by over-collateralization, MakerDAO has built a system that maintains stability without relying on endless token inflation. 

Security must become a priority, not an afterthought. 

DeFi runs on smart contracts, and even a single vulnerability can result in catastrophic losses. Additionally, developers need to embrace formal verification and rigorous stress testing of smart contracts before launching them to the public. 

Aave, one of the most successful lending protocols, has demonstrated the importance of strong security frameworks. With features like isolation mode for riskier assets, supply caps, and continuous protocol upgrades, Aave has built a lending system that prioritizes risk management while maintaining decentralization.

More transparency is needed to reduce fraud and rug pulls. 

Anonymous teams launching projects with no accountability have been one of the biggest enablers of DeFi scams. While anonymity has its place in crypto, investors should at least be able to verify a project’s legitimacy through transparent roadmaps, public audits, and multi-signature treasury management. Greater transparency in fund allocations and team ownership structures can go a long way in reducing the number of malicious projects that prey on unsuspecting investors. 

Uniswap has set an example by embracing full transparency with its open-source protocol and clear governance model, allowing the community to participate in decision-making rather than relying on a centralized team.

Regulatory clarity must improve. 

DeFi currently operates in a grey area, with unclear and evolving regulations. This uncertainty discourages institutional investors from entering the space and makes it easier for bad actors to exploit loopholes. While overregulation could stifle innovation, clear guidelines on Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) compliance could help establish a safer environment without undermining DeFi.’s core principles. If the industry fails to self-regulate, harsher external regulations will eventually be forced upon it.

The industry must focus on real-world use cases rather than speculation-driven projects. 

Many DeFi platforms today exist primarily as financial experiments that rely on constant inflows of new investors. To build a sustainable future, DeFi projects need to solve real financial problems—whether it’s improving remittances, expanding financial access, or enabling decentralized identity solutions. 

The Future of DeFi: Boom, Bust, or Breakthrough?

DeFi isn’t over—but it is changing. The next phase belongs to projects that deliver value, security, and real-world utility.

Examples like Aave, MakerDAO, and Uniswap prove that sustainable DeFi is possible. Meanwhile, regulators are slowly catching up, opening doors for broader adoption.

But the risk of failure is still high. If builders continue to chase fast profits over real impact, the cycle of boom and bust will continue.

DeFi’s future depends on its builders, users, and the industry chooses to prioritize next. Will they push for innovation that lasts—or let history repeat itself? The choice is ours.

 

Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence. 

 

If you want to read more market analyses like this one, visit DeFi Planet and follow us on Twitter, LinkedIn, Facebook, Instagram, and CoinMarketCap Community.

Take control of your crypto  portfolio with MARKETS PRO, DeFi Planet’s suite of analytics tools.”

Don't miss out!

Subscribe To Our Newsletter

Receive top education news, lesson ideas, teaching tips and more!
Invalid email address
Give it a try. You can unsubscribe at any time.
Thanks for subscribing!
Tags: DeFiDeFi Projects
Share64Tweet40Share11
Previous Post

MetaComp Unveils StableX to Modernize Cross-Border FX with Stablecoins

Next Post

The Rise of Modular Blockchains: How They’re Changing the Game

Olajumoke Oyaleke

Olajumoke Oyaleke

Olajumoke Oyaleke is a creative writer with a passion for crafting engaging and informative guides across a variety of topics. Deeply interested in Web3 and blockchain technology, Olajumoke is dedicated to making complex concepts accessible, helping readers stay informed on the latest trends in the space. Through writing, Olajumoke aims to showcase the possibilities of Web3 and simplify its advancements for a broader audience.

Related Posts

What Is Price Slippage in Crypto & How Can You Avoid It
Articles

What Is Price Slippage in Crypto & How Can You Avoid It

4 June 2025
Is Blockchain-as-a-Service the Key to Scalable, Secure, and Strategic Blockchain Adoption?
Articles

Is Blockchain-as-a-Service the Key to Scalable, Secure, and Strategic Blockchain Adoption?

3 June 2025
10 Things You Didn’t Know You Could Buy with Bitcoin
Articles

10 Things You Didn’t Know You Could Buy with Bitcoin

3 June 2025
Address Poisoning Attacks in Crypto: What They Are and How to Stay Safe
Articles

Address Poisoning Attacks in Crypto: What They Are and How to Stay Safe

3 June 2025

Featured Posts

The Hidden Dangers of Holding Crypto in Exchanges

The Hidden Dangers of Holding Crypto in Exchanges

byOlajumoke Oyalekeand1 others
27 May 2025
0

Should We Put a Price on Everything? The Ethics of Tokenizing Human Actions

Should We Put a Price on Everything? The Ethics of Tokenizing Human Actions

byFaari Labinjo
27 May 2025
0

The Most Influential Figures in Crypto History and Their Impact

The Most Influential Figures in Crypto History and Their Impact

byBobby Okposin
14 May 2025
0

Are Layer 2 Solutions Enhancing Ethereum—or Killing it?

byOlayinka Sodiqand1 others
6 January 2025
0

Beginner’s Guide To Earning Passive Income In Crypto | DeFi Planet

Simple Ways To Earn Passive Income From Your Crypto

byArjun Chandand1 others
1 September 2021
0

Read More

Chain of Thoughts

Are Stablecoins Bank Deposits?

Are Stablecoins Bank Deposits?

byOlu Omoyele
31 May 2025
0

...

DAOs and the Coordination of Human Endeavour

DAOs and The Coordination of Human Endeavour

byOlu Omoyele
27 April 2025
0

...

Should DeFi Be Regulated?

Should DeFi Be Regulated?

byOlu Omoyele
27 March 2025
0

...

Is Tokenization All That It’s Cracked Up To Be?

Is Tokenization All That It’s Cracked Up To Be?

byOlu Omoyele
26 February 2025
0

...

Markets Update

Your Weekend Crypto Roundup | May 2025 (Week 5)

4 days ago

Your Weekend Crypto Roundup | May 2025 (Week 4)

2 weeks ago

Your Weekend Crypto Roundup | May 2025 (Week 3)

3 weeks ago

Your Weekend Crypto Roundup | May 2025 (Week 2)

4 weeks ago

Your Weekend Crypto Roundup | May 2025 (Week 1)

1 month ago

Your Weekend Crypto Roundup | April 2025 (Week 4)

1 month ago
Read More

Events

Crypto Valley Conference
Crypto Valley Conference
5 Jun 25
Risch-Rotkreuz

Spotlight

All about Ethereum
All about Algorand
All about Bitcoin
All about Gora

Press Releases

BYDFi and Ledger Launch Global Campaign with Limited BYDFi x Ledger Nano X

bychainwire
5 June 2025
0

$ZEUS Marking His Territory: Announcing An IP Collaboration with Original Zeus Artist and Trademark Holder

bychainwire
4 June 2025
0

Huma Joins the Global Dollar Network to Advance Stablecoin Adoption on Solana

bychainwire
4 June 2025
0

Zircuit Joins Binance Alpha: ZRC Airdrop & Trading Competition Go Live

bychainwire
3 June 2025
0

CoinsBee Surpasses 5,000 Gift Card Brands, Becoming the Largest Crypto Gift Card Platform Worldwide

bychainwire
3 June 2025
0

Read More

ADVERTISING

ABOUT

TEAM

CAREERS

CONTACT

TERMS & CONDITIONS

PRIVACY POLICY

© Copyright 2025 DeFi Planet

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In

Add New Playlist

No Result
View All Result
  • News
    • People
    • Business
    • Crime
    • Regulation
    • Crypto
    • CBDC
  • Markets
    • Bitcoin
    • Ethereum
    • Stablecoins
    • Altcoins
    • Crypto ETFs
    • Memecoins
  • Policy
  • Articles
    • Press Releases
    • Opinion
    • Explainers
    • Guest Post
    • Sponsored
  • Directory
    • Companies
    • People
    • Products
    • Wallets
  • Multimedia
    • Videos
    • Podcasts
  • Learn
    • DeFi Basics
    • Tutorials
    • Reviews
    • Blockchain Fundamentals
  • Research
    • Case Studies
  • Explore
    • DeFi
    • Crypto Gaming
    • NFT
    • DAO
    • Metaverses
  • Jobs
  • Markets Pro
    • DeFi Planet Pro
    • Spend Crypto
    • Swap Crypto
    • Coin Prices
    • Crypto Exchanges
    • Crypto Analyzer

© Copyright 2024 DeFi Planet   |   Terms & Conditions   |   Privacy Policy

-
00:00
00:00

Queue

Update Required Flash plugin
-
00:00
00:00