DeFi Liquidity Reaches All-Time High Amid Decline in DApp User Activity

The Decentralized Finance (DeFi) sector is experiencing a surge in liquidity levels, reaching record-breaking highs. However, a significant drop in daily active user engagement across decentralized applications (DApps) highlights a growing disparity between institutional capital inflows and waning retail participation in blockchain-based ecosystems.

DeFi Liquidity Sets New Record Despite User Decline

A recent report by blockchain analytics firm DappRadar, published by Cointelegraph, reveals that the Total Value Locked (TVL) across DeFi protocols soared to an all-time high of $237 billion (approximately KRW 336.37 trillion) in Q3 2025. This milestone reflects the growing influence of institutional investors in the DeFi space. However, the same report underscores a 22.4% quarter-over-quarter decline in Daily Active Wallets (DAW), which fell to an average of 18.7 million during the same period.

"While institutional capital continues to flow into blockchain financial protocols, retail user participation is dwindling," DappRadar stated. This dichotomy demonstrates a sharp contrast: while DeFi liquidity reaches unprecedented heights, overall DApp activity is losing momentum.

Decline in User Activity Hits SocialFi and AI DApps Hardest

The overall contraction in DApp user engagement has been acutely felt in specific sectors, particularly SocialFi and AI-driven applications. AI-focused DApps saw their daily user base shrink dramatically, declining by over 1.7 million users—from 4.8 million in Q2 to 3.1 million in Q3. SocialFi platforms faced an even steeper slump, with average daily users dropping from 3.8 million to just 1.5 million during the same timeframe.

This decline signals shifting user interests and highlights the challenges faced by emerging blockchain-based application categories in maintaining consistent adoption rates.

Key Drivers of DeFi Liquidity Growth

Despite the downturn in user activity, several critical factors have contributed to DeFi’s robust liquidity growth:

• Institutional Investment in Bitcoin and Stablecoins: Increased exposure to flagship assets like Bitcoin (BTC) and stablecoins has amplified liquidity levels in DeFi protocols.
• Legislative Developments: The enactment of the U.S. stablecoin regulatory bill, referred to as the GENIUS Act, has provided regulatory clarity, spurring further adoption.
• Rise of Tokenized Real-World Assets (RWA): The development of infrastructure for tokenized RWAs has attracted new capital streams into DeFi.

Stablecoins, which serve as essential bridges between traditional finance and the crypto space, played a pivotal role during Q3. They experienced $46 billion (roughly KRW 65.29 trillion) in inflows, with Tether (USDT) and Circle’s USDC capturing the lion’s share of the market.

Adding to the liquidity boom was the debut of Plasma (XPL), a blockchain optimized for stablecoin functionality. Launched in Q3, Plasma garnered $8 billion (approximately KRW 11.36 trillion) in deposits in its first month, illustrating its rapid adoption and reinforcing the upward trajectory of DeFi liquidity.

Blockchain Network Performance: Winners and Losers

Among leading blockchain networks, Ethereum (ETH) retained dominance with $119 billion (about KRW 168.92 trillion) in TVL. However, this figure represents a 4% decline from the previous quarter, showing minor contractions in its DeFi foothold.

Solana (SOL) fared worse, registering a steep 33% drop in TVL, which fell to $13.8 billion (around KRW 19.59 trillion). This decline underscores the challenges faced by Solana in retaining its share of DeFi liquidity.

In stark contrast, BNB Chain saw a 15% surge in TVL, climbing to the third-largest blockchain by liquidity. This growth was primarily driven by ASTER, a decentralized perpetual futures exchange that launched in September.

Despite its success, ASTER has attracted scrutiny, with DeFiLlama co-founder 0xngmi questioning the authenticity of its reported trading volumes. These metrics closely mirrored activity patterns on Binance’s futures market, sparking suspicions of potential data anomalies. As a result, DeFiLlama suspended the inclusion of ASTER’s data in its aggregation metrics as a precautionary measure.

The Growing Divide Between Institutional Liquidity and Retail Users

The data reflects a clear trend: institutional capital continues to flood into DeFi, setting new liquidity records, while participation from individual users is on a steady decline. This widening gap highlights a fundamental shift in the blockchain financial landscape—a pivot toward institutional dominance at the expense of decentralized, grassroots engagement.

Moving forward, the DeFi ecosystem faces a critical challenge: balancing institutional growth with incentives that bring retail users back into the fold. Only by addressing this dichotomy can the sector sustain its growth while remaining true to its decentralized ethos.