The decentralized finance (DeFi) sector is facing a liquidity crisis, with major exploits and heightened market volatility contributing to a sharp drop in Total Value Locked (TVL). DeFi’s TVL has contracted from around $250 billion in mid-September to nearly $200 billion by early November, marking one of the steepest contractions in recent months. Ethereum, which accounts for the bulk of the sector’s value, saw its TVL shrink by 14%, while Solana and BNB Chain each experienced double-digit declines. This follows a week of dramatic selling pressure from investors seeking to move funds away from DeFi into more stable assets amid rising market volatility.
The recent liquidity crisis has been exacerbated by major security breaches, including a $120 million exploit on the Balancer protocol on November 3rd and a significant loss for Stream Finance of around $93 million in external assets. These incidents have triggered increased investor anxiety and uncertainty, with some networks like Base and Arbitrum experiencing modest but still significant drops in their TVL.
Security breaches play a key role in the ongoing market stress. Balancer’s exploit stemmed from an error in its batchSwap feature, while Stream Finance’s loss was attributed to unspecified technical issues. Both incidents demonstrate the vulnerability of DeFi protocols to security threats and the need for greater safety measures to protect investors and foster trust within the sector.