Bitcoin-based decentralized finance (DeFi) projects are narrowing their focus as market liquidity contracts, with total value locked (TVL) falling from about $180 billion last October to roughly $70 billion this month, according to industry data.
The steep decline reflects weaker participation and a broad pullback from crypto-native traders and hedge funds, forcing projects to rethink growth strategies in a lower-activity environment.
Projects target deeper capital pools
Speaking at an industry conference, Rootstock Labs executive Green said the firm is shifting away from mass retail engagement toward a smaller group of participants with larger capital reserves. These include bitcoin miners, treasury managers, and long-term holders seeking lending and yield opportunities backed by bitcoin.
The strategy focuses on building products tailored to sophisticated users rather than competing for high-volume retail activity, which has become less viable as fee revenue declines.
Green pointed to existing ties with miners as a key advantage. Data from the first quarter of 2026 shows more than 84% of Bitcoin’s hashrate supports the Rootstock network through merged mining, highlighting a built-in base of participants already aligned with the ecosystem.
Closures highlight pressure on the sector
The shift comes as weaker demand forces some projects to shut down. Bitcoin-focused network Botanix recently confirmed it will cease operations by July 9, citing unsustainable economics despite having functional technology.
The company said user activity was too low to generate sufficient fees, underscoring a broader issue across DeFi: most users still treat Bitcoin primarily as a long-term store of value rather than a tool for on-chain financial applications.
Security incidents accelerate outflows
Liquidity pressures intensified after a series of exploits in April drained about $606 million from DeFi protocols. The incidents triggered roughly $13 billion in outflows as traders moved funds to safer venues.
Since then, TVL has stabilized between $80 billion and $85 billion, but remains well below previous highs, reflecting a more cautious market stance.
Etfs reshape access to bitcoin
At the same time, exchange-traded funds have become the dominant gateway for bitcoin exposure. Assets held by U.S. spot Bitcoin ETFs have surpassed $100 billion, reinforcing a shift toward traditional financial products over on-chain participation.
This trend presents a direct challenge for DeFi platforms, which must now compete with simpler, regulated options offered through brokerage accounts.
Market participants say success will depend on whether new institutional-grade tools, such as secure vaults and tokenized asset frameworks, can persuade traders to move capital back on-chain.
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