DeFi shakeout is a stress test

Despite recent protocol shutdowns due to low margins, hacks, and inactive chains, the decentralized finance (DeFi) sector is demonstrating resilience rather than collapse. While total value locked has decreased, stablecoin market capitalization continues to grow, indicating a shift towards more stable and utility-focused instruments. Institutional investment in protocols like Morpho signals long-term confidence in the sector's infrastructure. However, significant challenges remain, including systemic security risks inherent in smart contracts, governance complexities where voting power can concentrate, and regulatory ambiguity, particularly in the United States, which deters conservative capital.