DeFi's Institutional Appeal Hindered by Persistent Security Risks, Says JPMorgan

According to JPMorgan, the persistence of security flaws in decentralized finance (DeFi) is deterring institutional investment, as evidenced by the recent KelpDAO exploit, which erased approximately $20 billion in total value locked (TVL) within a short period. TVL, a key metric for assessing the size and health of the DeFi ecosystem, has been stagnant, and the shift towards stablecoins underscores the ongoing fragility of the sector. The KelpDAO exploit, which involved the minting of unbacked assets and the draining of lending protocols, exposed the structural risks inherent in DeFi's interconnectedness. As a result, investors are increasingly seeking refuge in stablecoins, such as Tether's USDT, which offers deeper liquidity and faster off-ramps. The bank's analysts note that security vulnerabilities, including smart contract bugs and cross-chain bridge flaws, continue to pose a significant risk to the crypto industry, eroding confidence and hindering growth. Despite gains in smart contract auditing, hack losses this year are tracking 2025 levels, with infrastructure and bridge exploits remaining a primary vulnerability. The report concludes that security concerns are a foundational constraint on crypto's growth, and that DeFi's ability to scale for institutional use remains limited.