Ethereum DeFi Lags Behind, Even as Ether Price Crossed Record Highs

What to know:

• Ether (ETH) reached a new all-time high of $4,946, but its total value locked (TVL) in DeFi is below previous records.
• The shift in TVL is due to more efficient protocols and increased competition from other chains, affecting Ethereum's dominance.
• Institutional inflows are driving ETH's price highs, while retail DeFi activity remains subdued compared to previous cycles./li>

Ether (ETH) set a new all-time high at $4,946 earlier this week, but the fuel from on-chain finance looks weaker than in prior cycles.

However, the total value locked (TVL) across the network's decentralized finance (DeFi) ecosystem stalled at $91 billion, significantly below the $108 billion record set in November 2021, according to DefiLlama data.

In ETH terms, the gap is sharper: just under 21 million ETH are locked on Tuesday, compared to 29.2 million ETH in July 2021. Even earlier this year, the figure topped 26 million ETH. That means fewer tokens are actively tied up in DeFi than at any point since the protocol hit its price highs.

Layer 2s scoop up liquidity

Part of the shift is structural as layer 2s draw inflows. Coinbase-backed Base's DeFi TVL is standing tall at $4.7 billion, alongside the growth of Arbitrum and Optimism. Capital efficiency has also changed the equation, with staking protocols like Lido concentrate liquidity without requiring the same bulk deposits that once inflated raw TVL.

“Despite ETH reaching record new highs, its TVL remains below past records due to a combination of more efficient protocols and infrastructure, as well as increased competition from other chains amid a lull in retail participation,” said Nick Ruck, director at LVRG Research, in a Telegram message.

“To reclaim those TVL peaks, we'd need a resurgence in retail DeFi engagement, broader adoption of Ethereum-native yield opportunities, and a slowdown in capital migration to competing chains or off-chain investments. Ethereum's scaling solutions also need to balance efficiency with incentivizing robust on-chain liquidity to drive TVL growth,” Ruck added.

Back in 2020 and 2021, TVL was the market’s favorite growth metric. “DeFi Summer” turned yield farming into a speculative loop, with tokens flooding into Maker, Aave, Compound, and Curve in search of double- and triple-digit returns.

The rapid climb in TVL became a shorthand for Ethereum’s dominance and eventually a signal of price momentum. But that dynamic looks weaker this cycle. Volumes on DEXs and perpetuals remain steady, but they haven’t returned to levels that once defined Ethereum’s breakout.