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Over the past five years, DeFi has grown from a niche concept to a functioning, if still volatile, alternative to parts of the traditional financial sector. As of November 2025, its total value is locked sit between $100 and $120 billion, which is enough to confirm activity, but no longer enough to represent a transformation.
Summary
- DeFi’s TVL has fallen from its 2021 peak because most of the early “returns” were synthetic – driven by token emissions rather than real economic activity – leading to an inevitable collapse once inflows slowed.
- The market reset has shifted the focus to real yield, coupled with real production such as Bitcoin mining; tokenized hashrate now connects physical energy-backed computation with on-chain financing.
- Looking ahead, PoW-based, production-driven models appear more resilient for DeFi’s next cycle, while Ethereum’s PoS poses risks as the base layer becomes more conservative.
Moreover, that figure is less than half of DeFi’s previous peak in 2021 and early 2022. At the time, TVL exceeded $250 billion, which was the result of a simple mechanism that worked completely effectively: coin tokens, call them rewards and frame the outcome as sustainable returns. The model seemed promising at the time. Tokens rose in price, early entrants benefited simply by finishing first, and TVL continued to grow. In other words, most protocols offered effortless returns, and users rushed to seize the opportunity.
But what went wrong? Why is the current TVL about half of the previous level? The answer lies in the nature of that return, which was never realistic in economic terms.
The synthetic phase of DeFi collapsed and real yield took its place
At its peak, DeFi seemed unstoppable. But much of that growth depended on synthetic returns: returns generated by symbolic incentives rather than real economic activity. In fact, emissions-driven systems are vulnerable by design, because token rewards only retain value if new capital continues to flow in. Once the inflow slows, the value of tokens decreases, yields collapse, and users start leaving.
That’s exactly what happened. Speculative assets lost popularity, one-off miracle projects disappeared, liquidity shrank and overall activity fell along with the broader trend. crypto drop. So the market cleared itself, creating a long overdue structural reset.
At the same time, another type of return emerged: real return. Unlike synthetic returns, real returns depend on actual demand. It reflects direct participation: transaction fees, protocol revenues, or productive computations rather than token emissions.
This of course brings us to Bitcoin (BTC) and its network, one of the few networks where returns are linked to real production. Mining converts energy into verifiable computation, and this process determines the economic output of the network. But what if users want access to this production layer without managing the mining infrastructure themselves? That’s where tokenized hashrate comes in.
Tokenized hashrate connects physical energy and digital capital
In essence, hashrate tokenization means converting computing power into tradable digital assets. Instead of building infrastructure, entering into power contracts or managing equipment, users have tokens that allow them to share some of the actual work of a facility. As a result, they gain access to Bitcoin’s industrial layer without having to mine themselves.
The scale of Bitcoin mining is exactly what makes this model relevant now. There are crypto mining facilities in Texas alone surpassed 2,000 megawatts of registered power capacity by 2023, and within a year that number had increased to approximately 3,600 megawatts. These figures represent energy demand at an industrial level and prove that mining has outgrown the ‘sideline’ label it once carried.
At this stage, mining functions as a return-generating industrial sector – capital-intensive, energy-consuming, and fundamental to Bitcoin’s economic output. And this is exactly where tokenized hashrate becomes structurally important. It bridges two previously separate layers: physical production and digital finance.
Yet real production in itself does not guarantee stability, even if we see its rapid development today. If the underlying network architecture cannot sustain these returns over time, the ecosystem risks being stuck in the same cycle of expansion and collapse that caused the last downturn.
Proof-of-work versus proof-of-stake as competing yield architectures
Sustaining returns over time comes down to architecture, and in the case of Bitcoin, that foundation is proof-of-work. PoW secures the network through energy consumption and calculations, anchoring the yield to a real input. That’s why it’s essential for production-based models: energy is converted into work, and that work produces measurable results. But just stopping at Bitcoin would be missing the point.
Ethereum (ETH) also deserves attention, not least because it has been offering protocol-native returns for some time. Since the transition to proof-of-stake, ETH holders have been able to earn returns by committing assets and participating in network validation. This model is capital efficient, less resource intensive and requires no physical infrastructure. Yet it is precisely this efficiency that exposes its limitations.
Once a network starts to rely on a mature, low-risk validation mechanism, the scope for notable innovation shrinks. That’s what we see with Ethereum. Even Vitalik Buterin has done that said that Ethereum’s base layer needs to become more conservative, meaning a slower, more incremental development phase. And when the architecture stops evolving, the revenue it supports tends to stagnate as well.
PoW, on the other hand, moves in the opposite direction. Value creation depends on real production, so the more the sector grows, the more visible and controllable that output becomes. That’s why tokenized hashrate and other PoW-linked instruments are, in my opinion, much better positioned for the next cycle. Their returns are based on work actually done, and that makes them much more resilient.
What’s next for the DeFi cycle
At this point, the last cycle based on synthetic returns showed what happens when returns depend on leverage. The collapse paved the way for production-based models, and tokenized hashrate is the most tangible result yet. I believe this is the future of DeFi: in real yield, backed by production and infrastructure.
In turn, Ethereum’s system is flattening out. It can still be efficient, but if innovation at the base layer slows, returns risk becoming static, or worse, fragile. We have already seen what happens when yield becomes separated from fair value. So DeFi cannot afford to make that mistake again.
