The news that the total locked value in DeFi has surpassed 1 trillion dollars probably makes you feel that the 'wealth creation myth' is about to return, right? Opening the market software, various DeFi tokens are skyrocketing one after another, and the community is full of profit-sharing posts. Are you feeling the urge to jump in again? Stop! As an analyst who witnessed the DeFi bull market in 2020 and the DeFi collapse in 2022, I must remind you: the current DeFi market, on the surface, seems like a carnival, but it is actually filled with traps that prey on retail investors. Four liquidation minefields have already formed, and if you charge in recklessly, you will go bankrupt!
First, let me show you some data: The total locked value in DeFi has increased from 200 billion dollars last year to 1 trillion dollars now, a growth of 500% in one year. It seems crazy, but 60% of the funds are contributed by institutions and whales, while retail investors only account for 40%. Moreover, many projects attract locked value by offering 'high APY', which are not supported by real business, and could collapse at any time. You must remember these four traps!
The first trap: Leveraged mining under the temptation of high APY. Many DeFi projects are now calling out '200% annualized return' and '300% principal protection' to attract retail investors to leverage mining. But do you know? In 2025, cases of leveraged liquidation increased by 45% year-on-year. Many people added 5x or 10x leverage for mining, but when the project team withdrew their funds, they were directly forcibly liquidated and lost everything. Avoidance method: absolutely do not use leveraged mining, no matter how high the APY is. If you want to participate, only use funds you can afford to lose and keep your position control within 5% of total funds.
The second trap: Ignoring the risks of project smart contracts. The core of DeFi projects is the smart contract. Once there are vulnerabilities in the contract, hackers can easily steal funds. In 2025, multiple DeFi projects have already been attacked by hackers due to contract vulnerabilities, with losses exceeding $1 billion. Avoidance method: Before investing, you must look at the project's audit report, prioritize projects audited by authoritative institutions like Certik and PeckShield, and check the detailed content of the audit report, not just the results. Additionally, regularly revoke unnecessary contract authorizations using Revoke.cash to reduce risks.
The third trap: Blindly chasing newly launched DeFi projects. Many people think that new projects will experience a surge in the early stages, so they participate blindly regardless of project quality. But data shows that 90% of new DeFi projects will experience a drawdown of more than 50% within 3 months, or even go to zero. Avoidance method: Establish your own project evaluation framework, assessing projects from four dimensions: team background, white paper quality, on-chain data, and community activity. If the project team is anonymous, the white paper logic is chaotic, or on-chain data is fabricated, just pass.
The fourth trap: Lack of risk hedging in the investment portfolio. Many people invest all their funds into DeFi projects without any hedging measures. Once the entire DeFi market corrects, significant losses will occur. Avoidance method: Follow the 'three-layer investment portfolio structure', allocating 70% of funds to core assets like Bitcoin and Ethereum, 25% to quality DeFi projects, and 5% for risk hedging, such as allocating some stablecoins or shorting tools. This way, even if the DeFi market corrects, it will not affect your overall returns.
Let's talk about the future trends of the DeFi market. My view is very clear: there will be differentiation in the short term, quality projects will continue to rise, and garbage projects will be eliminated. In the long run, DeFi will become an important supplement to traditional finance, with a lot of room for development. In the short term, high APY projects will gradually cool down, and funds will flow back to quality projects supported by real business; in the long term, with the upgrade of Ethereum 2.0, the performance and security of DeFi will further improve, the user base will continue to grow, and the market scale can be further expanded.
I recommend a method for filtering quality DeFi projects: first, look at the stability of TVL (Total Value Locked); if TVL fluctuates significantly, it indicates problems with the project; secondly, look at the trading volume; only projects with real trading volume are valuable; finally, assess community quality; projects with active and in-depth discussions are much more reliable than those that only shout signals. I have already filtered out 5 quality DeFi projects using this method, and they are all steadily rising. Follow me @链上标哥 and don't get lost!
