DeFi Protocol Shutdown Wave: They all once had perfect technology and then died with dignity

Author: Ignas

Compiled by: Chopper, Foresight News

In the past two months, at least 10 crypto protocols have announced shutdowns. Not because they ran away, but due to lack of users, lack of funds, or both.

Not to mention mining companies and lending platforms like BlockFills freezing withdrawals. Just yesterday, Angle also announced (EUR stablecoin and USDA stablecoin, despite having a total locked value (TVL) of $250 million and good business partnerships.

In their announcement, Angle stated, “The decentralized stablecoin race has completely changed. Now, yield-bearing stablecoins are essentially just branding layers on existing vaults and lending protocols, with no need to maintain a separate infrastructure.”

Almost all of these shutdown projects had functioning products:

• Polynomial with a total trading volume of $4 billion, covering over 70 markets
• MilkyWay with a TVL once reaching $250 million
• Step Finance peaked at 300,000 monthly active users

I’ve used or at least experienced these products. The technology is sound, but no one is willing to pay to keep the projects alive.

MilkyWay is a typical example: less than two years, four transformations. Initially focused on Celestia liquidity staking, then shifted to re-staking, RWA tokenization, and crypto debit cards for paying rent… Each pivot chased the hot trend at the time.

Their description of re-staking is quite painful: “We saw the re-staking opportunity early, designed the system, reached a TVL of $250 million, completed security audits, and prepared to launch. But the market abandoned re-staking faster than anyone expected.”

In the end, they had to admit they couldn’t sustain until they found product-market fit.

Polynomial’s team explained their failure very straightforwardly, giving a lesson to all perpetual contract projects: “In derivatives, technical prowess is useless. We improved execution speed, optimized user experience, built innovative infrastructure, but none of it mattered. Traders only go where there’s liquidity, and we don’t have it. All the fancy features are just window dressing.”

The conclusion is even harsher: “Liquidity is the only moat for derivatives. You can’t beat liquidity with innovation, marketing, or development.”

The closure of ZeroLend serves as a warning to those trying to launch decentralized applications across multiple blockchains. They bet on niche chains like Manta, Zircuit, and Xlayer, but when the market turned bearish, these chains had no liquidity, and oracle services shut down.

Eventually, long-term losses made it unsustainable.

Recently, Aave also voted to shut down services on several chains, citing unprofitability.

There’s also Parsec, once a legendary tool in the space, used to track Terra, 3AC, and stETH depegs. But the team admits, “After the FTX crash, DeFi spot trading, lending, and leverage have never returned to their previous state. The market has changed, on-chain behavior has changed, and we didn’t truly understand it.”

Simply put, the market has shifted, but we remain stuck. The market is brutal.

After Slingshot was acquired, it was completely shut down. Eden cut 80% of unprofitable products, leaving only core business.

As they said, “The 80/20 rule has become a reality: products that cost 80% of our resources only generate 20% of the revenue.”

Finally, Step Finance is a special case: on January 31, it was hacked for $26 million and declared dead. “We tried fundraising, was acquired, but none worked out.”

What do these failed projects have in common? They failed to adapt to the ever-changing market and lacked the funds to pivot again.

Each team bet on a certain ecosystem exploding, but the results were either too slow or nonexistent. Celestia DeFi never truly took off, and on-chain derivatives struggle to compete with Hyperliquid, even veteran platforms like dydx and GMX are struggling.

Expanding into new chains and narratives is costly.

For players like me, transferring funds from one platform to another is easy and inexpensive. But applications require more time and financial investment to prepare for potential new user bases.

The good news is, these are all “decent deaths.” All projects gave users time to withdraw, teams didn’t run away or recklessly dump tokens. Compared to 2022’s outright exit scams, the industry has indeed learned to die responsibly.