A wave of high-profile manipulations is denting investor confidence, as fresh losses expose structural weaknesses in mutual funds just as institutions begin to increase exposure.
The latest developments have led to billions of withdrawals, which have also sparked concerns about whether the sector’s infrastructure is ready for mainstream funding.
As money circulates in the digital ecosystem, early signs suggest there is a broader shift underway, which could reshape the way both traders and institutional players approach risk.
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A recent exploit involving the Kelp DAO has become a bright spot in the industry, after attackers cost an estimated $292 million in cross-bridge vulnerabilities.
The breach caused ripple effects across all connected platforms, including lending platform Aave, where users rushed to cash out amid fears of bad credit and collateral instability.
According to industry data, the collapse wiped out tens of billions of dollars in closed value (TVL) within days, while widespread panic led to the withdrawal of nearly $9 billion from major DeFi platforms.
This incident is part of a wider trend.
Other exploits, including a $280-million breach of the Drift Protocol and a smaller $3.5 million attack on the Volo Protocol, made the total loss of funds limited to $10 billion.
JPMorgan analysts warned on April 23 that continued exploitation and stagnant growth continue to reduce the appetite for DeFi institutions.
The bank noted that the Kelp DAO incident alone wiped out nearly $20 billion in TVL in a matter of days, highlighting how quickly capital purchases can disappear during stress events.
“This incident created a liquid outflow without direct exposure to the vulnerable asset, showing that DeFi networks can be vulnerable during adverse events,” say analysts.
The report emphasized that this effect of infection is not isolated.
Because DeFi protocols are deeply interconnected through lending markets, collateral systems and interconnecting bridges, pressure on one component can quickly spread throughout the ecosystem, increasing losses and forcing users into a defensive position.
Apart from security risks, JPMorgan also pointed to the low growth of ETH-denominated TVL – a metric that smooths out price volatility – as a sign that the sector is struggling to achieve organic growth.
“This raises questions about the future of DeFi and whether DeFi can achieve the organic growth needed to support widespread institutional adoption,” added the report.
As volatility spreads, capital appears to be circling from DeFi to other centralized and liquid areas.
Analysts at JPMorgan noted that the recent exploitation is putting pressure on investors in stablecoins, especially Tether (USDT), which they describe as the “safety flight vehicle” of choice in times of stress.
That trend was underscored on April 23, when Tether froze $344 million in USDT in cooperation with US law enforcement, demonstrating the level of control and accountability found in centralized systems.
“USDT is not a safe haven for illegal activities,” CEO Paolo Ardoino said.
“When credible links to sanctioned companies or criminal networks are identified, we act quickly and decisively.”
The split highlights a growing reality in crypto markets. Although DeFi offers open, permissionless access, times of stress are increasingly drawing users to systems with stronger oversight, spending mechanisms and enforcement mechanisms.
As institutional money weighs this trade-off, the balance between diversification and protection emerges as one of the key questions for the industry’s next phase.
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This story was originally published by TheStreet on April 23, 2026, where it appeared first in the NEWS section. Add TheStreet as a favorite source by clicking here.
