Zerolend, a multi-chain decentralized credit protocol, just announced it is closing its credit markets after years of building it up. This is part of a broader wave of projects in the DeFi sector facing closures for similar reasons.
The decision to discontinue Zerolend’s activities comes gradually after approximately three years of construction. According to the team, it was not an easy decision, but one that was necessary given the untenable circumstances.
Why Zerolend is stopping
According to one after of the team, the main reasons behind the decision are:
- Inactivity or significant drops in liquidity/activity in many of the supported chains
- Oracle offers shutdown support
- Hacks and exploits
There is also the problem of tight profit margins on lending, which led to long-term losses. As part of the protocol’s phase-out, most markets have set their Loan-to-Value (LTV) ratios to 0%, meaning lending is disabled and only withdrawals are allowed.
The team has urged users to withdraw their funds through the app as soon as possible. For assets stuck in chains with low liquidity, the team promised upgrades that will enable recovery. The announcement and subsequent lawsuit are an attempt by the protocol to end things honorably rather than shock users with sudden death.
The protocol arrived on the scene in early 2024 and grew significantly on L2 chains such as Linea and Zksync. It currently has a TVL of $6.6 million, a value that is almost the lowest level ever after the phase-out.
Source: Defillama
Other DeFi projects have been shut down for similar reasons
Zerolend has announced plans to close, citing adverse conditions, but it is not the only project to do so. Some other DeFi protocols have announced closures or strategic pivots amid the maturing market.
A good example is Polynomial, a DeFi derivatives protocol that announced it ceased operations around February 14, 2026. This puts an end to the polynomial chain and polynomial trading. The process includes forced liquidations, closure of the liquidity layer and complete closure of the chain.
The Protocol initially had a TGE planned for the first quarter of 2026, but that was put on hold as the team called it a worthless venture because the product is dying. Going forward, the team will focus on new projects with priority for early backers.
Another good example of a DeFi protocol that is paying off is Alpaca Finance, a farming and lending protocol with leverage on BNB. It announced plans to shut down operations completely by the end of 2025, citing revenue issues and delisting from major exchanges such as Binance.
Elixir’s deUSD has also closed after suffering heavy losses related to the $93 million collapse of Stream Finance, a protocol it was tied to.
To be clear, what is happening is not a mass exodus of DeFi projects. If we are to believe experts, this is a natural pruning that takes place in an adult environment. Most protocols facing shutdowns are on the small side; Meanwhile, the larger, more prominent projects are receiving more attention.
This suggests that the market is rallying around proven projects, while others are experiencing natural attrition. Some of the thriving protocols include Aave, the undisputed leader in on-chain lending, Morpho, a next-generation option in lending, and Compound, one of the original projects that sparked the DeFi summer.
While Aave is thriving, it has also had to make some strategic cuts in response to market conditions. For example, it has had to shut down its Avara web3 brand to ensure 100% of its focus is channeled into maintaining its lending franchise.