DeFi Activity on Ethereum Slows While Ether Reaches Record Prices

Ethereum Hits Record Highs, But DeFi Activity Lags

Ether (ETH) surged to a new all-time high of $4,946 earlier this week, driven primarily by institutional inflows. Yet, despite the price momentum, activity within Ethereum’s decentralized finance (DeFi) ecosystem remains subdued compared with previous cycles, highlighting a growing disconnect between valuation and on-chain engagement.

The total value locked (TVL) in Ethereum DeFi currently stands at $91 billion, below the $108 billion peak reached in November 2021, according to DefiLlama. In ETH terms, roughly 21 million tokens are locked, compared to 29.2 million ETH in July 2021 and more than 26 million earlier this year. This represents the lowest DeFi participation at ETH’s price highs since the last bull cycle.

Although decentralized exchange (DEX) volumes and perpetual trading remain active, they have not returned to previous peak levels, indicating weaker retail engagement despite record prices.

Layer 2s and Capital Efficiency Reshape Liquidity

Part of the reduced DeFi participation is structural. Layer 2 networks such as Coinbase-backed Base, Arbitrum, and Optimism are drawing substantial liquidity, with Base alone holding $4.7 billion in DeFi TVL. Additionally, liquid staking solutions like Lido concentrate capital efficiently, reducing the bulk deposits once required to inflate raw TVL.

“Even with ETH reaching record highs, TVL remains below prior peaks due to more efficient protocols, infrastructure improvements, and competition from other chains, alongside subdued retail participation,” said Nick Ruck, director at LVRG Research.

Ruck added that a return to previous TVL levels would require renewed retail interest, broader adoption of Ethereum-native yield opportunities, and slower capital migration to competing chains or off-chain investments. “Ethereum’s scaling solutions need to incentivize on-chain liquidity while maintaining efficiency,” he noted.

Price Driven by Institutional Flows

Unlike the 2020–2021 “DeFi Summer,” when retail-driven yield farming fueled TVL growth and reinforced ETH price momentum, this cycle is dominated by ETFs, institutional allocations, and macro positioning. Net assets in Ethereum-focused investment products have surged from $8 billion in January to over $28 billion this week.

This divergence underscores a risk for ETH bulls: record prices are being supported more by institutional flows than grassroots activity. The hope remains that rising prices will eventually draw retail participants and renewed on-chain engagement, but for now, Ethereum’s rally leans heavily on institutional capital rather than broad-based DeFi usage.