The recent shutdown of numerous DeFi protocols all share one thing in common.

Compared to simply absconding with funds a few years ago, the industry has learned to die responsibly.

Author: Ignas

Compiled by: Chopper, Foresight News

In the past two months, at least 10 encryption protocols have announced their shutdown. Not that they ran away with the money, but rather that they had no users, no money, or both.

Not to mention mining companies and lending platforms like BlockFills freezing withdrawals. Just yesterday, Angle also announced (https://x.com/AngleProtocol/status/2029161525580112263) the gradual shutdown of EURA and USDA stablecoins, despite their total value locked (TVL) of $250 million and their successful business partnerships.

In the announcement, Angle stated directly, "The decentralized stablecoin landscape has completely changed. Stablecoins with yields now are essentially just branding existing treasuries and lending protocols; there's no need to maintain a separate infrastructure."

Almost all of these shut-down projects had products that were still functioning normally.

• Polynomial has accumulated $4 billion in trading volume, covering more than 70 markets.
• MilkyWay TVL once reached $250 million
• Step Finance's monthly active users peaked at 300,000.

I've used all of these products, or at least experienced them. The technology is fine, but nobody's willing to pay to keep the project afloat.

MilkyWay is a prime example: four transformations in less than two years. It started with Celestia liquidity staking, then moved to restaking, RWA tokenization, and a crypto debit card for paying rent... Each transformation chased the hottest trends of the time.

Their description of restaking was disheartening: "We saw the restaking opportunity early on, designed a system, TVL surged to $250 million, and the security audit was completed, ready to go live. But the market abandoned restaking much faster than anyone expected."

In the end, we had to admit that the funds wouldn't last until we found a product that fit the market.

The Polynomial team put it very bluntly about the reasons for their failure , providing a lesson for all perpetual contract projects: "In the derivatives space, good technology is useless. We improved execution speed, optimized the user experience, and built innovative infrastructure, but none of it mattered. Traders only go where there is liquidity, and we didn't. Everything else was just fancy features."

The conclusion is even more brutal: "Liquidity is the only moat for derivatives. You can't beat liquidity with innovation, you can't beat liquidity with marketing, and you can't beat liquidity with development."

ZeroLend's closure serves as a wake-up call for decentralized applications attempting to launch on multiple blockchains. They had bet on niche blockchain-supported projects like Manta, Zircuit, and Xlayer, but as the market turned bearish, these chains lost liquidity, and oracle service providers ceased operations.

Finally, the company's long-term losses made it unsustainable.

Aave recently voted to shut down several on-chain services, also citing the reason that they were operating at a loss.

There's also Parsec, once a legendary tool in the industry, used to track the decoupling of Terra, 3AC, and stETH. But the team admits, "After FTX collapsed, DeFi spot trading, lending, and leverage never returned to what they used to be. The market changed, on-chain behavior changed, and we didn't really understand it."

Simply put, the market has turned, but we're still stuck in the same place. The market is ruthless.

Slingshot was completely shut down after being acquired. Eden cut 80% of its unprofitable products, leaving only its core business.

As they say, "The 80/20 rule has become a reality; we spend 80% of the cost on products that only generate 20% of the revenue."

Finally, Step Finance is a special case: it was hacked for $26 million on January 31st, effectively ending its existence. "It tried fundraising and acquisition, but nothing worked."

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

Every team bet on an ecosystem to experience explosive growth, but the results were either slow growth or no growth at all. Celestia DeFi never really took off, its on-chain derivatives struggled to compete with Hyperliquid, and even established platforms like dydx and GMX faced difficulties.

Expanding into new chains and narrative domains, however, is very costly.

For players like myself, transferring money from one platform to another is easy and inexpensive. But apps need to invest more time and money to prepare for a potential new user base.

The good news is that these are all "deaths with dignity." All projects gave users time to withdraw their funds, and the teams didn't abscond or issue tokens recklessly to profit from losses. Compared to the outright collapses of 2022, the industry has indeed learned to die responsibly.

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