DeFi TVL Drops 27% in Q1 2025 Due to Hacks and Instability

• DeFi TVL dropped 27% in Q1 2025, impacted by a $1.4B Bybit hack and Ethereum’s 45% fall.
• AI-powered dApps saw a 29% rise, while Social dApps increased by 10% in daily active wallets.
• Despite the NFT market’s struggles, Real-World Assets (RWAs) gained traction in Q1 2025.

Total Value Locked (TVL) within decentralized finance (DeFi) dropped by 27% during the first quarter of 2025, reaching $156 billion. Security breaches, declining crypto prices, and overall market instability are key factors behind the drop in DeFi sector performance, as highlighted in the latest DappRadar report.

Impact of Security Vulnerabilities

The DeFi TVL experienced a decline, partly due to a $1.4 billion hack on Bybit, one of the biggest cryptocurrency exchanges. The exploit initiated by a hacker group resulted in the loss of Ethereum and Bitcoin assets. The security breach caused users to lose confidence in DeFi platforms, which resulted in massive market-wide panic.

Other than Bybit, various security vulnerabilities caused substantial impacts on the entire DeFi ecosystem. Hacking incidents affecting Phemex and Infini caused users to lose $37 million and $50 million, respectively, which decreased investor trust completely. The accumulation of security breaches during Q1 2025 caused a total loss of $2 billion.

Market Instability and Economic Pressures

In addition to security issues, the worldwide economic environment significantly affected the regression. TVL’s largest blockchain, Ethereum, experienced a 45% value reduction in Q1 2025, leading to the DeFi’s decrease. Major blockchains like Solana, Tron, and Arbitrum joined Ethereum in declining by more than 30% in their TVLs.

The reintroduction of import tariffs by U.S. President Donald Trump caused disruption in supply chains and financial markets, which generated fear in the cryptocurrency market. DeFi investments experienced a decline because investors withdrew their trust from digital marketplace operations.

Growth of AI and Social dApps Amidst DeFi’s Struggles

Despite the challenges faced by DeFi, AI-powered decentralized applications (dApps) showed impressive growth. Daily active wallets interacting with AI protocols increased by 29%, reaching 2.6 million. Features of decentralized tools with artificial intelligence capabilities are gaining popularity according to user preferences, which is driving the growth of AI dApps.

Similarly, social dApps experienced a 10% increase in daily active wallets, with 2.8 million wallets engaged in these platforms. The market indicates a growing focus from users toward advanced financial systems like AI systems and social network solutions that operate in web3 frameworks. 

Related: Bybit to Close NFT, Inscription, and IDO Platforms From April

NFT Market Struggles and the Rise of Real-World Assets (RWAs)

During Q1 2025, the non-fungible token (NFT) marketplace demonstrated a  24% decline in volume. However, the Real-World Asset (RWA) NFT trend brought new market potential. During the quarter, Courtyard and similar platforms started gaining popularity because they allowed users to tokenize their physical collectibles.

Despite the overall decline in NFT activity, PFP (Profile Picture) collections continued to dominate the market, accounting for 56%. The growth of RWA NFTs reflects a shift toward more tangible real-world assets being represented in the digital space.

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