Liquidity begets liquidity, so the saying goes.

Hyperliquid, as its name suggests, has become the decentralized exchange of choice for many traders, particularly those who want to trade perpetual futures or “perps,” blockchain-based derivatives contracts that allow users to speculate on the price of an asset with leverage and no expiration date.

Created by Harvard classmates Jeff Yan and a pseudonymous developer known as iliensinc, Hyperliquid, which went live at the start of 2023, is capitalizing on its volume and depth of order book by offering firms something akin to composibility: the concept from decentralized finance (DeFi), whereby permissionless smart contracts can slot together like money LEGOs, the building blocks of new tokenized financial products.

Hyperliquid’s Ethereum-compatible HyperEVM connects directly to its super-fast homegrown HyperCore blockchain, allowing other applications to compose atop the platform’s shared liquidity rather than fragmenting it. In other words, applications like wallets or even other exchanges can piggyback on Hyperliquid, using it as a backend to offer perps trading and other services.

As more builders deploy on and integrate Hyperliquid, liquidity deepens, the variety of assets expands, and network effects compound. There are now hundreds of developers — including big names like MetaMask, Phantom wallet and South African exchange VALR — using Hyperliquid’s system of “builder codes.” Builders have generated some $90 million in revenue so far, according to Flowscan.

A growing army of acolytes can’t praise the platform enough.

“Hyperliquid is not just a perpetuals exchange, it’s more like the AWS for finance,” said Hansu Jian, CEO of Hyperion DeFi, the first U.S.-listed treasury company focused on Hyperliquid’s native token HYPE.

“The perps part is great, but this is really a layer-one blockchain infrastructure. The service on offer is actually liquidity, and having all these markets work well, and allowing anyone to build things on top of them,” Jian said in an interview.

Similar to AWS for cloud infrastructure, builders own their users and fully control the user interface, while Hyperliquid provides the underlying liquidity and execution. Builder code integrators charge fees on the notional size of their users’ trades without developing the backend or maintaining liquidity.

“Builder codes let integrators focus on what they do best, delivering a great user experience, while Hyperliquid serves as the backend for liquidity and execution,” said Sterling Barnett, business development lead at Hyperliquid Labs, via email. “Integrators can offer their users best-in-class onchain liquidity and institutional-grade infrastructure, and earn fees on every trade.”

For an app like MetaMask, the Ethereum-based wallet that reports over 100 million users worldwide, it makes perfect sense to fuse with Hyperliquid’s EVM module. MetaMask has given its users self-custodial access to perps directly from the wallet since October of 2025.

Being a wallet has the advantage that there’s no decentralized app (dApp) to connect to, while fund transfers are streamlined to the point where users can trade directly with the tokens they already hold, said Matthieu Saint Olive, Staff Product Manager at MetaMask. It plugs into MetaMask’s money account, social login, and follow trading and leaves Hyperliquid to handle matching, the oracle, and the margin engine, he said.

“Matching orders is genuinely hard, and Hyperliquid is excellent at it, so we don’t try to rebuild it,” said Saint Olive via email. “By routing orders straight to the Hyperliquid order book, MetaMask Perps offers some of the best liquidity and execution quality available anywhere. ”

MetaMask said it’s seeing growth beyond crypto towards things like commodities and equities, according to Saint Olive. “Real-world-asset markets have gone from a small slice of perp volume at the start of 2026 to roughly a quarter of it today,” he said.

When it comes to fees, MetaMask charges a flat 0.1% builder fee, disclosed up front, with no hidden spread and nothing buried in execution, so a trader can verify exactly what they paid. “We think that transparency is the real advantage, and we’re actively exploring more innovative pricing models, because we want the economics to be a reason people choose MetaMask, not a source of friction,” Saint Olive added.

It’s more surprising to find a large centralized exchange handing over liquidity requirements to Hyperliquid’s perps order book. But taking the Hyperliquid route has proved a good option for South Africa-based exchange VALR, ranked among the largest exchanges in Africa with close to two million retail customers and about 2,000 corporate institutional customers, according to the exchange’s CEO and co-founder, Farzam Ehsani.

Having started out offering customers spot market, spot margin, and then perpetuals, the team at VALR built all the infrastructure in-house, including risk and liquidation engines, Ehsani said. Despite all the hard work that went into launching perpetual futures, Ehsani said candidly that it was difficult to get volume and liquidity.

“So perpetual futures on our own books didn’t take off as we had hoped they would, predominantly because of the liquidity and volume,” Ehsani said in an interview. “Our volume is our volume; we are truthful and transparent and don’t do any wash trading or anything like that. We saw Hyperliquid bringing a huge amount of volume and market participants from all over the world together and thought, ‘Why don’t we plug into that?’”

Looking ahead, when the likes of Robinhood, Coinbase, Intercontinental Exchange and others go full throttle into offering perps, there will be opportunities for cross-venue arbitrage, according to Jian of Hyperion.

“Say you are maintaining one position on Robinhood, for example, and the other side of the position on Hyperliquid,” Jian said. “Then, because you have a lot of what’s called non-toxic flow, which is when more retail users are just purely entering and exiting the market, you’ll be able to see more organic mechanisms for funding rates.”

“I’m very supportive of moving the CLARITY Act forward, so we can get some market structure in place and start to move the innovation process along,” Solomon said.

SoFi CEO Anthony Noto welcomed Goldman Sachs’ support, noting on X that the two firms have taken a different stance than some banks on crypto regulation.

“Durable rules for digital assets are critical for U.S. global competitiveness,” Noto wrote. “It protects consumers and lets us build safely under homegrown regulation. Congress should pass it immediately.”

The growing chorus of support comes as the bill enters a critical stretch on Capitol Hill.

Senate negotiators recently unveiled updated legislative text that merges House and Senate proposals and, for the first time, outlined how ethics restrictions for senior government officials involved with crypto could work. That issue has become one of the biggest sticking points in negotiations, with lawmakers still debating whether the proposal goes far enough to address concerns surrounding President Donald Trump’s crypto business interests.

Even with revised language in hand, the Senate isn’t expected to take up the bill immediately. Majority Leader John Thune has shifted the chamber’s focus to judicial nominations and a Russia sanctions package, leaving the Clarity Act waiting for floor time.

Bitcoin (BTC) hit ten-day lows at Tuesday’s Wall Street open as BTC price action followed a US stocks sell-off.

Key points:

• Bitcoin price action reacts to contagion from an Asia stocks sell-off as it hits US markets.
• Chip makers are at the epicenter of the reversal with South Korea’s KOSPI Index closing the day down 10.8%
• Crypto long liquidations pass $500 million in 24 hours.

Semiconductor giants fuel major Asia stock comedown

Semiconductor-led losses from Asia spilled over into US trading. South Korea’s KOSPI Index finished the day down 10.8% in a single session, fueled by 14.8% losses for chip-maker SK Hynix, while Japan’s memory manufacturer Kioxia Holdings fell 18.3% on the day.

In the US, the tech-heavy Nasdaq Composite Index was down just over 1% at the time of writing. Notably, semiconductor manufacturer Micron Technologies, which fell by more than 10% at the open, erased a rebound and saw its lowest levels since May 22.

Micron Technologies one-week chart. Source: Cointelegraph/TradingView

Semiconductor stocks are contending with intensifying scrutiny over the sustainability of hyperscaler capital expenditure. Investors increasingly question whether the underlying economics of AI infrastructure buildouts can justify their scale. Combined 2026 capex guidance from Alphabet, Microsoft, Amazon, and Meta is now tracking toward $725–730 billion, with Wall Street projecting that figure could climb toward $900 billion in 2027. Alphabet posted its first cash burn on record in the second quarter, at $5.9 billion, even as its cloud unit posted 82% growth.

Layered on top of the financing concerns are competitive pressures on US-based AI companies from Chinese startups. Moonshot AI’s Kimi K3 open source model, first launched two weeks ago, was benchmarked competitively against top proprietary systems from Anthropic and OpenAI. This has intensified questions about the return profile assumed by the spending commitments of Western hyperscalers, given their capabilities may be replicated at a fraction of the cost.

Crypto short liquidations pass $500 million

Today’s sell-off in the semiconductor and AI sector has not left Bitcoin unscathed. Data from TradingView showed BTC/USD dipping below $63,000 for the first time since July 17.

BTC/USD four-hour chart. Source: Cointelegraph/TradingView

Crypto markets saw elevated long liquidations on the back of the day’s reversal, with data from CoinGlass putting these in excess of $510 million over 24 hours.

Related: Markets eye Bank of Japan meeting on Friday as yen repeats 40-year US dollar lows

Cryptocurrency liquidation history (screenshot). Source: CoinGlass

On Monday, crypto analytics platform CoinAnk warned of the risk of a long liquidation “cascade” below $64,700.

“Extremely large long liquidity has accumulated below this level,” it commented.

CoinAnk added that to the upside, little resistance remained, with the area between $65,800 and $66,200 being a “major short liquidation zone.”

Clear Creek Financial Management disclosed about $15.1 million across Bitcoin, Ethereum, XRP, and Solana exchange-traded funds in its latest US regulatory filing.

Clear Creek’s Bitcoin ETF holdings top $10 million

Clear Creek’s largest disclosed crypto position was the Bitwise Bitcoin ETF (BITB). The investment adviser reported owning 304,155 shares valued at about $9.69 million at the end of the reporting period.

The firm also held approximately $477,412 in BlackRock’s iShares Bitcoin Trust ETF and $248,539 in the Grayscale Bitcoin Trust ETF. Together, its three Bitcoin ETF positions were worth roughly $10.4 million.

BITB accounted for close to 93% of the firm’s disclosed Bitcoin ETF allocation. Clear Creek manages more than $1.5 billion in assets, placing the crypto positions at a relatively small share of its wider portfolio.

Form 13F requires institutional investment managers overseeing at least $100 million in qualifying US securities to disclose certain long positions every quarter. However, the reports are backward-looking and do not include cash, short positions or assets that fall outside the filing rules.

Clear Creek could therefore have increased, reduced or exited some positions after the reporting date.

Ethereum becomes the firm’s second-largest crypto allocation

Ethereum ETFs formed Clear Creek’s second-largest digital asset allocation at almost $4.3 million.

The firm reported 337,162 shares of the Bitwise Ethereum ETF, valued at approximately $3.8 million. It also disclosed 14,336 shares of the iShares Ethereum Trust worth $170,455.

Clear Creek held a further 21,374 shares of the Grayscale Ethereum Staking ETF, valued at $321,251. The staking product gives investors exposure to ETH while incorporating rewards generated through Ethereum’s proof-of-stake network, subject to the fund’s structure and fees.

Separately, Morgan Stanley launched Ethereum and Solana staking ETFs on July 28. The products charge a management fee of 0.14%, adding another major Wall Street name to the expanding US crypto fund market.

The developments show how regulated products are giving investment advisers several ways to allocate to the same digital asset, including products from Bitwise, BlackRock, Grayscale and Morgan Stanley.

XRP and Solana ETFs broaden Clear Creek’s strategy

Clear Creek also reported smaller positions tied to XRP and Solana, taking its disclosed crypto ETF portfolio beyond the two largest digital assets.

The investment manager held 11,621 shares of the Bitwise XRP ETF, valued at $135,501 at the reporting date.

Its Solana allocation was split between two funds. Clear Creek owned 11,258 shares of the Bitwise Solana Staking ETF worth $112,693 and 28,144 shares of the Grayscale Solana Staking ETF valued at $155,636.

Those positions brought the firm’s total reported Solana ETF exposure to about $268,329. Although small compared with its Bitcoin and Ethereum holdings, the allocations show that some US advisers are using regulated funds to gain exposure to a wider group of crypto assets.

Morgan Stanley also recently disclosed an XRP ETF position, providing another example of traditional financial firms moving beyond Bitcoin-only exposure.

US and global crypto ETF markets continue expanding

Clear Creek’s filing arrives as the SEC considers changes to how it reviews a growing pipeline of ETF proposals.

Brian Daly, an official in the SEC’s Division of Investment Management, said the agency receives roughly 200 ETF applications each month, according to Bloomberg ETF analyst Eric Balchunas. Daly also acknowledged that the regulator had handled crypto poorly and wanted a more orderly process for reviewing novel products.

The SEC is reportedly considering confidential ETF filings, which could allow issuers to submit proposals privately before making them public. Such a system could protect new fund ideas from competitors while regulators conduct an initial review.

Other markets are also examining broader crypto fund access. Japan could allow its first Bitcoin ETF by 2028 as regulators prepare rules permitting investment trusts and ETFs to hold digital assets directly.

For US investors, Clear Creek’s disclosure does not prove that the firm remains invested at the same levels today. It does, however, provide a documented view of how one registered adviser distributed its crypto exposure across four assets and several competing issuers.

Decentralized finance (DeFi) has transformed how people trade, lend, borrow, and earn yield without relying on traditional financial intermediaries. However, as blockchain adoption accelerates, many decentralized applications (dApps) are spreading across multiple Layer 2 (L2) networks to achieve lower fees and higher transaction throughput. While this expansion improves scalability, it also introduces new challenges related to liquidity fragmentation, interoperability, and transaction coordination.

One emerging solution is shared sequencers—a new infrastructure layer designed to coordinate transaction ordering across multiple rollups. By enabling multiple Layer 2 networks to rely on a common sequencing mechanism, shared sequencers promise faster interoperability, improved security, and a better user experience. They could become one of the most important infrastructure upgrades for the next generation of DeFi.

Understanding Sequencers

To appreciate shared sequencers, it’s helpful to understand what a sequencer does.

In optimistic and zero-knowledge (ZK) rollups, a sequencer is responsible for:

• Receiving user transactions
• Ordering transactions into blocks
• Executing transactions
• Publishing data to the underlying Layer 1 blockchain

Today’s Layer 2 networks typically operate their own independent sequencers. This means each network determines transaction order independently.

While this model works well for individual rollups, it creates issues when DeFi protocols need to interact across multiple Layer 2 ecosystems.

The Problems with Independent Sequencers

As liquidity spreads across various rollups, users encounter several challenges.

Liquidity Fragmentation

A decentralized exchange may have liquidity on multiple Layer 2 networks, making it difficult to access the best pricing without bridging assets.

Cross-Chain Delays

Transactions moving between rollups often require bridges, introducing delays ranging from seconds to several minutes.

Increased MEV

Independent transaction ordering allows sophisticated traders to exploit arbitrage opportunities, increasing Maximum Extractable Value (MEV) and potentially harming regular users.

Poor User Experience

Users often need to switch networks, bridge tokens, and wait for confirmations before completing simple DeFi activities.

What Are Shared Sequencers?

Shared sequencers act as a common transaction ordering service for multiple rollups.

Instead of every Layer 2 network maintaining its own isolated sequencer, several rollups can submit transactions to a shared sequencing network that coordinates execution across all participating chains.

Think of it as multiple airports using the same air traffic control system instead of each operating independently.

The result is synchronized transaction ordering across ecosystems.

How Shared Sequencers Work

A simplified workflow looks like this:

1. Users submit transactions.
2. Transactions reach the shared sequencer network.
3. The sequencer determines a global transaction order.
4. Ordered transactions are distributed to participating rollups.
5. Rollups execute transactions while maintaining synchronized ordering.
6. Final settlement occurs on Ethereum.

This coordinated process dramatically simplifies cross-rollup interactions.

Benefits for DeFi

Seamless Cross-Rollup Trading

Shared sequencers make atomic cross-chain transactions possible.

For example:

• Swap ETH on one rollup
• Purchase another asset on a different rollup
• Complete both actions simultaneously

Either every step succeeds, or none do.

This eliminates partial execution risks.

Better Liquidity Efficiency

Rather than splitting liquidity across isolated ecosystems, protocols can coordinate liquidity more effectively.

Benefits include:

• Better capital utilization
• Reduced slippage
• Improved trading prices
• More efficient arbitrage

Liquidity effectively behaves as though networks are more closely connected.

Reduced MEV

Shared sequencing enables better management of transaction ordering.

Advanced sequencing mechanisms can:

• Reduce front-running
• Limit sandwich attacks
• Create fair ordering policies
• Enable encrypted transaction submission

This creates healthier markets for traders.

Faster Bridging

Cross-rollup communication becomes significantly faster because participating chains share transaction ordering.

Instead of waiting for independent confirmations, synchronized execution shortens settlement times.

Improved User Experience

Most users don’t care which Layer 2 they are using.

Shared sequencers move DeFi closer to an experience where:

• Networks become almost invisible
• Applications feel unified
• Cross-chain actions happen automatically
• Wallets manage complexity behind the scenes

This could greatly improve mainstream adoption.

Shared Sequencers and Cross-Chain DeFi

Imagine a lending protocol operating on four Layer 2 networks.

Today:

• Collateral remains isolated.
• Liquidity pools are fragmented.
• Arbitrage requires bridging.
• Borrowing may involve multiple manual steps.

With shared sequencers:

• Liquidity appears more unified.
• Cross-rollup collateral becomes easier to coordinate.
• Lending markets become more efficient.
• Interest rate imbalances can adjust faster.

The result is a smoother and more capital-efficient financial system.

Security Considerations

Although shared sequencers provide many advantages, they also introduce new design challenges.

Decentralization

If only one organization controls the sequencer, it becomes a central point of failure.

Many projects are therefore building decentralized sequencer networks with multiple independent operators.

Censorship Resistance

Sequencers must prevent malicious operators from censoring transactions.

Mechanisms under development include:

• Validator rotation
• Cryptographic commitments
• Permissionless participation
• Fallback sequencing mechanisms

Economic Incentives

Sequencer operators require incentives to remain honest.

Many designs incorporate:

• Staking
• Slashing penalties
• Shared transaction fees
• Consensus protocols

These mechanisms align operator behavior with network security.

Projects Building Shared Sequencer Infrastructure

Several blockchain infrastructure projects are actively exploring shared sequencing, including:

• Astria
• Espresso Systems
• Radius
• Rome Protocol
• Init4

Each project approaches decentralization, interoperability, and sequencing differently, but all share the goal of making rollups operate more like a unified ecosystem.

The Future of Shared Sequencers

As Ethereum continues scaling through rollups, interoperability becomes increasingly important.

Shared sequencers could eventually enable:

• Cross-rollup lending
• Unified decentralized exchanges
• Cross-chain liquidations
• Multi-rollup yield strategies
• Unified NFT marketplaces
• Interoperable gaming economies
• AI agents executing transactions across multiple chains simultaneously

Rather than treating each Layer 2 as a separate blockchain, shared sequencing allows them to function more like connected components of a larger decentralized financial network.

Challenges Ahead

Despite their promise, several hurdles remain:

• Standardizing communication between rollups
• Scaling decentralized sequencer networks
• Preventing centralization
• Balancing speed with security
• Developing sustainable economic models

Solving these issues will require collaboration across blockchain ecosystems.

Conclusion

Shared sequencers are among the most significant infrastructure innovations in the evolution of Ethereum’s Layer 2 ecosystem. By coordinating transaction ordering across multiple rollups, they address key challenges such as liquidity fragmentation, inefficient cross-chain interactions, and excessive MEV, while enabling smoother and more secure decentralized finance experiences.

As DeFi expands beyond isolated networks, the importance of seamless interoperability will only grow. Shared sequencers provide the foundation for a future where users can interact with decentralized applications across multiple rollups as effortlessly as using a single blockchain. If successful, they could become a core building block of the next generation of scalable, interconnected, and user-friendly DeFi.

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Crypto exchange Kraken is offering retail investors access to the planned Jersey Mike’s initial public offering, allowing eligible US customers to request allocations of the sandwich chain’s shares and users in more than 110 countries to request tokenized shares backed 1:1 by the underlying stock.

Eligible US customers can submit interest in book-entry Jersey Mike’s shares at the IPO price, while global customers can request JMKEx, a tokenized version of the stock with the backing shares held in regulated custody. Allocations are determined by the IPO underwriter and are not guaranteed.

JMKEx will begin trading 24 hours a day, five days a week on Kraken and participating xStocks Alliance platforms once the IPO closes, while the underlying Jersey Mike’s shares will trade during regular US market hours.

Kraken said tokenized shares can be transferred across participating xStocks Alliance platforms, moved onchain and integrated with compatible decentralized finance applications, extending access to public equities beyond traditional brokerage accounts.

Jersey Mike’s is a US sandwich chain with more than 3,300 locations. According to the company’s IPO announcement, it expects to price the offering between $21 and $25 per share and list its Class A shares on the New York Stock Exchange under the ticker JMKE.

Related: Kalshi in early IPO talks with investment banks: Report

SpaceX offering faced allocation shortfall

Jersey Mike’s is the latest company to be offered through Kraken’s tokenized IPO platform, following SpaceX’s public debut in June. Several other crypto platforms, including Binance, Bybit, Blockchain.com, Bitget Wallet and MEXC, also launched products tied to the SpaceX offering.

However, demand for the listing quickly outpaced supply. The SpaceX IPO was reportedly more than four times oversubscribed, leaving crypto platforms competing for a limited pool of underlying shares.

Several exchanges, including Binance, Bybit, Bitget Wallet and MEXC, ultimately canceled their tokenized IPO campaigns and refunded users after they were unable to secure enough underlying SpaceX shares to fulfill customer allocations.

Those Nasdaq traded shares have declined from their $135 IPO price, last trading at roughly $115 on Tuesday.

The difficulties surrounding the SpaceX rollout have not slowed growth in the broader tokenized equities market. RWA.xyz data shows the sector’s distributed value rising from well under $500 million in mid-2025 to about $1.87 billion, including a 29.4% increase over the past 30 days.

Tokenized equities. Source: RWA.xyz

Magazine: The real reason DeFi projects that survived 2022 crash are shutting down now

Decentralized finance is shedding projects again. DeFi dashboard Zapper announced it will shut down after nearly seven years, adding to a wave of closures and wind-downs that have marked 2026 across multiple segments of the industry.

Earlier this year, Bitcoin DeFi platform Botanix, Solana portfolio tracker Step Finance, DeFi analytics platform Parsec, and DEX aggregator Odos Protocol also moved toward shutdown or completion of operations. RootData has tracked 101 “dead” crypto projects in 2026 as of July 26, and observers say DeFi accounts for more than half of those failures.

Key takeaways

• DeFi closures in 2026 aren’t explained solely by “bear market blues.” Analysts argue capital has shifted to different parts of the ecosystem rather than disappearing.
• Concentration may be easing, not intensifying. Artemis data cited in the report suggests leading protocols hold smaller shares than they did two years ago.
• Fees and revenue matter more than TVL for diagnosing which DeFi models are economically viable today.
• Capital is reportedly more selective. Investors are less likely to chase short-term token incentives without a proven distribution or track record.
• Infrastructure is consolidating while experimentation moves upward. New products increasingly build on existing DeFi rails rather than recreating core protocols.

A “death list” trend that still raises strategic questions

The visible pattern—multiple DeFi products shutting their doors—naturally invites a simple narrative: the 2026 environment is harsher, and only the strongest teams survive. Zapper’s decision follows a broader sequence of winding downs that includes tools across trading, analytics, and Bitcoin-focused DeFi.

Botanix’s founders, in earlier coverage, pointed to weak demand as a key factor behind its closure. In June, they told Cointelegraph that onchain activity consolidating around a smaller set of venues—such as Hyperliquid and large centralized exchanges—helped hasten Botanix’s decline. That framing fits a common industry complaint: liquidity is concentrating into fewer places.

But Artemis Research’s Alex Weseley argues the “concentration is increasing” storyline doesn’t match DeFi data. In the report, Weseley states that the prevailing narrative suggests DeFi is becoming more centralized due to exploits and capital rotation into “Lindy” protocols—while his analysis says the opposite.

Artemis: concentration drifted lower, but economics rotated

According to the Artemis data cited, concentration across tracked DeFi protocols has drifted lower since 2024. Even though major categories retain dominant incumbents—Uniswap in decentralized exchanges, Aave in lending, and Jupiter in perpetuals by locked capital—each leader reportedly holds a smaller share of its sector than it did two years ago.

Weseley’s larger point is that capital and usage may be moving into adjacent parts of the crypto economy rather than leaving it entirely. The report quotes him saying the economics didn’t disappear; they “rotated to adjacent apps,” naming Hyperliquid, Polymarket, and pump.fun. The implication for traditional DeFi is that classic DeFi’s share of fee generation may shrink even while total fee activity remains robust elsewhere.

This is where the report’s methodological shift matters. Weseley argues that while TVL can answer the “liquidity” question, it can mislead when the issue is economic viability. In his view, fees and revenue provide a more direct measurement of whether DeFi models remain sustainable.

Artemis estimates that the number of DeFi applications generating at least $1 million in monthly fees rose to about 33 or 34 in mid-to-late 2025 before dropping back to roughly 25 or 26 during the first half of 2026. It also estimates that the number generating more than $10 million in monthly fees roughly halved over the same period.

Put differently: even if users and capital haven’t fully “exited” DeFi, the economic engine—measured through fees—has cooled for many protocols. For teams that depend on high-frequency demand or stable onchain activity, that can be the difference between operating profitably and winding down.

Gauntlet: demand is high, but incentives aren’t driving funds the way they used to

DeFi risk management firm Gauntlet takes a more optimistic view of underlying market health. Nicholas Cannon, chief business officer at Gauntlet, tells Magazine that demand is “the strongest it has ever been,” citing growing stablecoin supply and an apparent drift from traditional finance toward DeFi rather than away from it.

In the report, Gauntlet argues the key change since the previous downturn is how capital behaves. According to Cannon, investors are more selective than in past cycles—less easily pulled in by short-term token incentives designed to “bootstrap” user activity.

The quoted stance is blunt: in earlier cycles, liquidity followed incentives wherever they pointed. Now, capital reportedly follows “sustainable yield, track record, and curation.” Incentives can still help start traction, but the report suggests they no longer guarantee survival on their own.

Markus Levin, co-founder of infrastructure company XYO, reinforces this idea—especially for institutional capital. He says the institutional layer in 2026 is more selective, and the strongest survivors are likely those with meaningful existing user distribution or the ability to reach beyond the “traditional DeFi audience.” If that expectation holds, it means today’s bar for success may be higher than the bar set during earlier bear markets.

The report also points to where new experimentation is concentrating: tokenized assets, stablecoins, and emerging categories such as agentic DeFi. While these areas are not presented as cures for every DeFi challenge, they align with the thesis that the economics are shifting rather than disappearing.

Infrastructure consolidation and distribution-led growth

One consequence of DeFi maturation highlighted by the report is that fewer teams are attempting to build the next Aave or Uniswap from scratch. Instead, Cannon argues that startups increasingly use established infrastructure as a foundation.

The report links this shift to where funding is landing. It cites a June announcement from Morpho association about a $175 million raise to support institutional lending onchain. It also cites July coverage that agentic DeFi startup Alpaca raised $135 million to build infrastructure for AI-powered financial applications.

In that environment, the product competition changes. Rather than competing head-to-head with incumbents for liquidity, newer protocols may win by being embedded into platforms users already use. The report quotes Morpho Labs co-founder Merlin Egalite saying protocols that grow fastest will increasingly be those integrated into existing user surfaces—wallets, exchanges, and fintech platforms—rather than those trying to pull users away from their current workflows.

Egalite also argues future growth will come from making DeFi infrastructure easier for traditional financial firms to adopt without rebuilding core systems. For builders and investors, that reframes “innovation” as less about reinventing everything and more about reducing friction for integration and distribution.

What to watch as DeFi’s winners and losers sort out

As 2026 continues, the key question isn’t just which projects are shutting down, but whether surviving DeFi apps can maintain fee generation while distribution advantage shifts toward embedded infrastructure. Readers should watch fee-revenue trends, not just TVL, and track whether capital allocation favors products with durable users and integration pathways—or whether more mainstream DeFi tooling keeps getting crowded out by adjacent venues.