Ether Price Surges to Record Levels, But DeFi Momentum Falters

Ethereum Hits New Price Highs While DeFi Activity Trails

Ether (ETH) reached a record $4,946 earlier this week, fueled largely by institutional inflows. However, the broader Ethereum DeFi ecosystem shows muted activity compared to previous cycles, revealing a notable gap between price gains and on-chain engagement.

Total value locked (TVL) across Ethereum DeFi currently sits at $91 billion, significantly below the $108 billion peak seen in November 2021, according to DefiLlama. In ETH terms, just under 21 million tokens are locked, down from 29.2 million in July 2021 and over 26 million earlier this year. This represents the lowest DeFi participation at Ethereum’s price highs since the last bull run.

Despite steady decentralized exchange (DEX) volumes and perpetual trading flows, activity has not returned to prior peak levels, signaling weaker retail engagement even as ETH sets new records.

Structural Shifts in Liquidity

Layer 2 networks such as Coinbase-backed Base, Arbitrum, and Optimism are absorbing a growing share of liquidity, with Base alone holding $4.7 billion in DeFi TVL. Meanwhile, liquid staking protocols like Lido concentrate capital efficiently, reducing the need for large deposits that previously inflated TVL.

“ETH’s record highs are coexisting with subpar TVL due to more efficient protocols, stronger infrastructure, and competition from other chains, alongside a lull in retail participation,” said Nick Ruck, director at LVRG Research.

He added that returning to previous TVL peaks would require a revival in retail engagement, broader adoption of Ethereum-native yield opportunities, and a slowdown in capital migration to competing chains or off-chain investments. “Scaling solutions must incentivize on-chain liquidity without compromising efficiency,” Ruck noted.

Price Momentum Driven by Institutions

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

The divergence emphasizes that ETH’s record prices are underpinned more by institutional flows than by grassroots on-chain activity. Bulls hope rising prices will eventually rekindle retail participation and on-chain engagement, but for now, Ethereum’s rally relies heavily on institutional capital rather than broad DeFi adoption.