Persistent security breaches and stagnation in key DeFi metrics prevent institutional investors from embracing the sector. Without solving these issues, the ecosystem will remain an experimental niche.
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Analysts at JPMorgan, led by Nikolaos Panigirtzoglou, reached this conclusion. Without solving the problem, the ecosystem will remain an experimental niche rather than a key component of the financial landscape for large players.
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Kelp DAO—The “Perfect Victim”
Experts recalled the recent Kelp DAO incident. A hacker exploited a cross-chain bridge vulnerability, generated $292 million in unbacked rsETH, and deposited it as collateral into Aave.
As a result, total DeFi TVL shrank by $20B in just a few days. The attack triggered capital outflows even from pools not directly related to the compromised asset.
JPMorgan analysts noted that despite improvements in smart contract auditing, bridge security remains a critical and unresolved problem.
Read more: DeFi United—Aave and DeFi Giants Pledge ETH After Kelp Hack
TVL Growth Without Real Growth
The dynamics of TVL raise additional concerns. The metric’s growth in US dollars only reflects the recovery of the digital asset market. When measured in Ethereum (ETH), the metric has not changed, indicating a lack of organic expansion.
“This raises questions about the future of DeFi and whether DeFi can achieve the organic growth needed to support broader institutional adoption,” the report stated.
Read also: Morgan Stanley Launches Stablecoin Reserves Fund for Issuers
Where Institutional Money Is Going
JPMorgan emphasized that each new hack reinforces the “flight to safety” pattern. Participants move funds into stablecoins, just as traditional investors move to cash during uncertainty. USDT▲$0.9989 remains the priority due to deeper liquidity on centralized exchanges.
Analysts concluded that until the ecosystem overcomes the model of recursive vulnerabilities and base value stagnation, it cannot meet strict risk management and reliability standards. As a result, institutions will focus more on stable and transparent structures like spot crypto ETFs or centralized stablecoin liquidity pools.
Read more: Top 5 High-Growth DeFi Projects in 2026—Where Smart Money Is Moving
