Written by: Liam 'Akiba' Wright

Translated by: Saoirse, Foresight News

The theft of $292 million worth of rsETH from KelpDAO occurred at a particularly unfavorable time for the DeFi industry. Prior to this, the security vulnerability of Drift Protocol on April 1 and the collapse of the Venus lending protocol in March had already severely damaged the market's confidence. After this incident, approximately $10 billion in funds were withdrawn from the DeFi sector over the entire weekend.

The accumulation of multiple crises has made the challenges facing DeFi increasingly unavoidable. Although the open-source decentralized financial system still exists, it is gradually losing its core status as the default entry point for on-chain finance. Stablecoins, tokenized government bonds, and compliant settlement channels continue to expand rapidly, while permissionless native protocols are enduring continuous market trust depreciation.

A list of theft events from 2026 circulating on social platform X visually reflects the current pessimism in the industry.

2026 Hacker Ranking (Source: Our Crypto Talk)

Some security incidents have been fully reviewed, while other risks are still ongoing, and many events blur the lines between protocol vulnerabilities, cross-chain bridge failures, and user asset theft. This article mainly analyzes the confirmed security events of 2026 and the changes in the industry landscape exposed by these events.

The current predicament of the industry is vastly different from the peak of DeFi in the summer of 2020 and the bull market of 2021; that brilliance now only exists in memory. At that time, DeFi was telling the market a narrative of open, efficient, and composable finance; by 2026, these qualities still exist but no longer carry the aura and market faith.

Each major theft incident raises the trust cost for users participating in DeFi. Currently, the fastest-growing and safest areas of on-chain finance are slowly becoming payment networks, tokenized government bonds, and compliant token products, rather than the complex token ecosystem of native DeFi.

The true test for the industry now lies in whether open-source DeFi can quickly rebuild market trust and maintain its position as the mainstream entry point on-chain. At present, the sector does not appear to be heading towards extinction, but rather facing a situation where its space is being compressed.

DeFi's Security Risks Have Long Exceeded Just Smart Contract Vulnerabilities

After experiencing a major hacking attack, people often fall into the misconception of attributing all incidents to smart contract code vulnerabilities. The incident involving the Drift protocol, which suffered a loss of approximately $285 million, serves to prove that this understanding is outdated.

On-chain data analysis firm Chainalysis revealed that this attack stemmed from permission abuse, vulnerabilities in administrator pre-signing operations, and false collateral assets, rather than simple code statement flaws. The market has thus realized that a significant amount of current risks in DeFi is lurking in governance permissions, signature mechanisms, and operational architecture.

This fundamental change alters the underlying objects that users need to trust. Code audits and market-validated contracts remain important but can no longer cover the entire risk chain: signature nodes, cross-chain bridges, oracles, and market parameters all harbor hidden dangers. When protocols span multiple blockchains, management committees, liquidity platforms, and collateral derivatives, the speed at which the attack surface expands far exceeds the pace at which decentralized narratives are updated.

The retrospective review of the Venus protocol also exposed similar issues, though the form of risk was different. Attackers took out loans by overvaluing collateral, extracting about $14.9 million in assets, leaving the protocol with over $2 million in bad debts. Although the causes of the incident differ from those of Drift, the conclusion is the same: in the context of fragile liquidity and structural anomalies, leading DeFi lending platforms remain vulnerable to asset crises.

This was followed by the sudden collapse of KelpDAO. According to CryptoSlate, this vulnerability triggered a run on approximately $10 billion in funds across the entire DeFi market, forcing all rsETH-related markets to freeze. Even if subsequent market emotions eased and outflow data saw some corrections, the signal remains quite clear: when faced with the complexities of cross-chain interactions, collateral uncertainties, and systemic contagion risks, the first choice for users is to withdraw their funds.

This trend also aligns with the 2026 security report released by security firm TRM: in 2025, the vast majority of industry theft losses originated from infrastructure attacks, surpassing simple smart contract vulnerabilities.

The trust crisis in DeFi is becoming increasingly difficult to isolate because what the industry needs to defend is no longer merely the code itself, but the entire complex operational system built upon the code.

On-Chain Finance Continues to Grow, but Funds Are Flowing to Safer Products

The overall funding landscape does not support the notion of a "complete collapse of DeFi." CryptoSlate's April data shows:

• The market capitalization of USDT has reached $185 billion, and USDC's market capitalization is $78 billion;
• The total amount of stablecoins on the Tron blockchain is $86.958 billion, while Solana's stablecoin total is $15.726 billion.

The Ethereum chain still retains the core stock of native DeFi, with the market showing more concentration of funds being migrated rather than a complete exit.

The shift of funds to low-volatility wealth management tracks is more pronounced. As of March 12, 2026, the scale of tokenized U.S. government bonds has reached $10.9 billion, with over 55,000 holders.

Users are still using blockchain for settlement and asset rights confirmation; they simply are no longer willing to put their assets into the complex and high-risk native DeFi projects.

The market differentiation is very clear:

Signals of Trust Pressure and Fund Outflows:

• KelpDAO theft of $292 million triggered approximately $10 billion fund withdrawals across the entire industry;
• Drift suffered a 50% reduction in locked amounts due to permission vulnerabilities;
• Venus exposed risks in lending due to weak liquidity and frequent bad debts.

Positive On-Chain Growth Signals:

• The combined market capitalization of USDT and USDC is approximately $263 billion;
• The scale of tokenized U.S. government bonds has reached $10.93 billion, with over 55,000 holders;
• Visa continues to promote USDC settlements, laying out an institutional-level stablecoin ecosystem.

Capital is clearly aggregating towards products with clear logic, adequate collateral, and adaptability for institutional entry.

Visa's 2026 stablecoin strategic report is worthy of close attention: its data shows that in 2025, the total supply of stablecoins increased by over 50%, from $186 billion at the beginning of the year to $274 billion by the end of the year; it states that 2026 will be the year when institutions officially lay out their stablecoin strategies, indicating that the stablecoin track is moving towards mainstream normalization.

This is similarly true at the settlement layer. Visa disclosed that its monthly settlement volume for USDC has exceeded an annualized scale of $3.5 billion.

The digital itself occupies a small share in the entire stablecoin market, but its industry significance is profound: compliant traditional financial infrastructure is now connecting to on-chain networks, no longer needing to rely on the entire narrative eco-system of native DeFi.

The Core of Industry Competition: Who Will Control the Future On-Chain Infrastructure

CryptoSlate's previous analyses have pointed out that compliant institutions are competing for an on-chain funding pool exceeding $330 billion, which includes approximately $317 billion in stablecoins and nearly $13 billion in tokenized government bonds.

These funds continue to pursue the advantages of high-speed, programmable, and uninterrupted 24/7 settlements, with market attention focused on leading assets and foundational settlement networks rather than various niche governance experiment projects.

Compared to the bull market cycle of 2021, the gap is particularly evident.

In previous cycles, DeFi simultaneously encompassed the underlying infrastructure and terminal products: centers of innovation, sources of high yields, models of future finance were all concentrated here. By 2026, the future of on-chain finance is being stripped of the chaotic risks of native DeFi and repackaged.

Tokenized funds achieve 24/7 circulation and rapid settlement, while stablecoins support payment and treasury operations; institutions, while enjoying the advantages of blockchain, firmly control compliance, counterparty risks, and market structure.

CryptoSlate's project shutdown report indicates that in the first quarter of 2026, over 80 crypto projects have officially ceased operations or entered liquidation processes. Though this is not limited to DeFi, it is sufficient to indicate that capital has run out of patience for projects that cannot generate long-term value, stable returns, and real applications.

Cryptocurrency spot ETFs are also part of this larger trend. Compliant products continue to attract market funds and attention, with users and institutions favoring infrastructure that allows them to enjoy blockchain benefits without bearing the high trust risks of native DeFi.

This also allows native DeFi to retain its positioning, though its space is being narrowed: open composability and permissionless innovation still possess value, acting as a financial original language innovation laboratory—where DeFi conducts trials and errors before various new models are absorbed and popularized by compliant products.

The core contradiction within the industry remains one of trust pressure.

Native open-source DeFi is losing its narrative dominance; if it fails to quickly rebuild trust, optimize operational architecture, and prove the irreplaceability of its complex design, it will gradually lose its position as the front-end entry point for on-chain finance.

The core game in the industry has now become clear: who will bear the next wave of on-chain demand, and currently, it appears that safer, compliant on-chain packaged products are gaining the upper hand.