JPMorgan says repeated DeFi hacks, a $20 billion TVL drop after Kelp’s rsETH exploit, and flat ETH-denominated TVL are souring institutional appetite for on-chain lending and yield.
Summary
- JPMorgan says repeated DeFi exploits and flat ETH-denominated TVL are dampening institutional interest.
- A recent rsETH bridge exploit linked to Kelp DAO wiped approximately $20 billion of DeFi TVL in days.
- The attackers minted around $292 million in unsecured rsETH, leaving around $230 million in bad debt on Aave and pushing investors toward USDT.
JPMorgan analysts told The Block that “frequent security incidents in DeFi and stagnation of total value locked (TVL) in terms of ETH continue to limit institutional interest in DeFi,” highlighting how repeated exploits are eroding trust at scale.
JPMorgan points out that DeFi security affects institutions
Citing the latest cross-chain bridging incident involving Kelp DAO’s rsETH, the bank said the episode “led to a loss of approximately $20 billion in DeFi TVL in a few days,” underscoring how quickly nominal liquidity can evaporate when trust is broken.
In their note, the analysts described how the attackers “minted around $292 million in unsecured rsETH and borrowed real ETH on Aave using it as collateral, resulting in approximately $230 million in bad debt,” turning what started as a smart contract loophole into a systemic hit on frontline lending markets.
Flight to USDT and stagnant growth
JPMorgan also argued that these explosions are changing user behavior, writing that “after security incidents, users tend to turn to Tether’s USDT for security,” as capital rotates from riskier native protocol assets and yield strategies to perceived stable ports.
The bank pointed to the stagnation of DeFi’s TVL when measured in ether, rather than dollars, as another structural warning sign, noting that the flat or declining TVL denominated in ETH suggests that “underlying activity is not growing even as token prices rise.”
According to The Block, the analysts concluded that until DeFi can demonstrate “sustained improvements in security, risk management and insurance mechanisms”, large institutions will remain cautious about allocating more capital to on-chain lending, derivativesand cross-chain infrastructure.
