According to Odaily Odaily, Eli5DeFi published an article on the X platform stating that incentive-driven DeFi models will disappear by 2026. DeFi protocols lose users when incentives end because risk-adjusted returns revert to real-world levels. The growth in TVL (Total Value Locked) during the incentive phase often reflects subsidized participation rather than sustained usage demand or fee revenue.
It points out that the "liquidity leasing" model has three stages: the incentive period attracts funds by compensating for high emission risks; the normalization period sees reduced incentives and real yield emerge; and the withdrawal period sees funds recalculate costs and exit after returns normalize. The reason for the collapse in retention rates is that incentives temporarily mask structural weaknesses, including the Impermanent Loss risk of subsidies, the fact that returns are essentially marketing expenses rather than revenue, highly internalized demand, and high friction costs.
Eli5DeFi believes that retention rates can only improve if the economic model remains effective after incentives normalize. Protocols must address Impermanent Loss and principal risk, anchoring returns to real demand rather than token inflation, and increasing revenue streams by expanding the ecosystem. The future of DeFi should be evaluated based on sustainable income, capital efficiency, and risk-adjusted returns.
