The $175B
Collapse

In 2020, developers built a parallel financial system on Ethereum. In 2021, $175 billion flooded in. In 2022, most of it burned down. This is what the on-chain data shows.

2020

The Money Legos awakened

Compound launched COMP governance tokens in June 2020. For the first time, you could be paid to borrow. Yield farmers rushed in. DeFi TVL went from $1B to $15B in six months — an ecosystem built in a summer.

MakerDAO, Compound, Uniswap, Aave — four protocols held more value than many mid-sized banks. The term 'DeFi Summer' was coined. Nobody had a word for what came next.

November 2021

Terra promised 20% forever

$175 billion locked across DeFi. Terra's Anchor protocol paid 19.5% APY on UST stablecoins — a rate backed not by revenue, but by the Luna Foundation's reserve. The yield was real. The sustainability wasn't.

Curve Finance had become the backbone of DeFi liquidity, with $25B in its pools. The system felt indestructible — interconnected, self-reinforcing, unauditable by any single mind.

May 9–13, 2022

May 9, 2022 — UST loses its $1 peg. LUNA: $80 → $0.00015

The $40B bank run that took a week

On May 8, large wallets began pulling UST from Anchor. The peg slipped to $0.99. The Luna Foundation Guard sold $3.5B in Bitcoin reserves to defend it. They failed. UST hit $0.10. The entire Terra ecosystem — $40B in market cap — was gone in 5 days.

TVL fell from $175B to $75B in three weeks. The 'algorithmic stablecoin' experiment was over. But the contagion had only just begun.

Jul – Nov 2022

Jul 2022: Celsius freezes withdrawals · Nov 2022: FTX files Chapter 11

Celsius. Three Arrows. FTX. The cascade.

Luna exposed who was lending to whom. Celsius had $12B in user deposits — deployed into DeFi yield strategies. Three Arrows Capital had borrowed from every major lender. When FTX collapsed in 72 hours, the last pillar of institutional trust in crypto was gone.

DeFi TVL hit $35B — an 80% collapse from the all-time high. Yet not one on-chain liquidation was missed. Aave, Uniswap, Curve kept running. The protocols survived. The promises didn't.

2023 – 2024

On-chain survived. Off-chain didn't.

The protocols that failed were built on promises: Anchor's 20% APY, Celsius's yield engine, FTX's balance sheet. The protocols built on code — Uniswap, Aave, Curve — had never stopped working.

TVL recovered above $100B in early 2024 — this time led by Lido (liquid staking ETH) and real-yield lending. No algorithmic stablecoins. No 20% APY. Just code, collateral, and consensus. The chart above shows live data from DeFiLlama.

2025 – 2026

DeFi as infrastructure, not casino

EigenLayer introduced restaking in 2024 — ETH stakers could now secure multiple networks with the same capital. By 2025, $15B was restaked. The yield wasn't 20% APY — it was 4–6%, earned by doing real work: validating rollups, securing bridges, running oracles.

Real-world assets arrived on-chain at scale. Ondo Finance tokenized US Treasuries. Maple deployed institutional credit. BlackRock's BUIDL fund held $500M in tokenized bonds. TVL crossed $110B — but this time, the collateral was real.

The narrative had changed. DeFi in 2021 was speculation dressed as yield. DeFi in 2025 is clearing infrastructure — slower, less exciting, harder to hack, and quietly handling billions that never touch a bank.

Sources

Data is approximate and for illustrative purposes only. Verify against official publications before any decision-making use.

2020