JPMorgan issues blunt warning as investors move to safety

A wave of high-profile exploits is rattling investor confidence, as fresh losses expose structural weaknesses in decentralized finance just as institutions were beginning to scale exposure.

The latest incidents have triggered billions in withdrawals, reigniting concerns about whether the sector’s infrastructure is ready for mainstream capital.

As capital rotates across the digital asset ecosystem, early signs suggest a broader shift is underway, one that could reshape how both retail and institutional players approach risk.

Related: Crypto hacks raise fresh concerns for Wall Street adoption

The recent exploit involving Kelp DAO has become a flashpoint for the sector, after attackers drained roughly $292 million through a cross-chain bridge vulnerability.

The breach triggered a cascade of effects across interconnected protocols, including lending platform Aave, where users rushed to withdraw funds amid fears of bad debt and collateral instability.

According to industry data, the fallout wiped out tens of billions of dollars in total value locked (TVL) within days, while broader panic led to nearly $9 billion in withdrawals from major DeFi platforms.

The incident is part of a wider trend.

Additional exploits, including a $280-million breach at Drift Protocol and a smaller $3.5-million attack on Volo Protocol, have pushed total losses in decentralized finance past $10 billion.

Analysts at JPMorgan warned on April 23 that persistent exploits and stagnant growth continue to limit institutional appetite for DeFi.

The bank noted that the Kelp DAO incident alone erased roughly $20 billion in TVL in a matter of days, highlighting how quickly liquidity can evaporate during stress events.

“The incident triggered outflows from pools with no direct exposure to the compromised asset, showing that DeFi’s interconnectedness can be a weakness during adverse events,” the analysts said.

The report emphasized that this contagion effect is not isolated.

Because DeFi protocols are deeply interconnected through lending markets, collateral systems and cross-chain bridges, stress in one segment can rapidly spread across the ecosystem, amplifying losses and forcing users into defensive positioning.

Beyond security risks, JPMorgan also pointed to flat growth in ETH-denominated TVL – a metric that strips out price swings – as a sign that the sector is struggling to achieve organic expansion.

“This raises questions about the future of DeFi and whether DeFi can achieve the organic growth needed to support broader institutional adoption,” the report added.

As volatility spreads, capital appears to be rotating away from DeFi into more centralized and liquid alternatives.

JPMorgan analysts noted that recent exploits are pushing investors toward stablecoins, particularly Tether (USDT), which they described as a preferred “flight-to-safety vehicle” during periods of stress.

That trend was underscored on April 23, when Tether froze $344 million in USDT in coordination with US law enforcement, demonstrating the level of control and responsiveness available in more centralized systems.

“USDT is not a safe haven for illicit activity,” said CEO Paolo Ardoino.

“When credible links to sanctioned entities or criminal networks are identified, we act immediately and decisively.”

The divergence highlights a growing reality in crypto markets. While DeFi offers open, permissionless access, periods of stress are increasingly driving users toward systems with stronger oversight, liquidity and enforcement mechanisms.

As institutional capital weighs these trade-offs, the balance between decentralization and security is emerging as one of the defining questions for the industry’s next phase.

Related: BlackRock warns there isn’t enough stock to buy

This story was originally published by TheStreet on Apr 23, 2026, where it first appeared in the MARKETS section. Add TheStreet as a Preferred Source by clicking here.