DeFi Lending Collapses in Cryptocurrency Space When Collateral Asset Prices Fall

DeFi lending protocols in the cryptocurrency sector have experienced a sharp decline, with the total market value decreasing by approximately $45 billion since October last year.

According to data from Artemis, the total deposits on these platforms have fallen 36%, from a peak of $125 billion in October to just $79.6 billion.

Aave leads the decline in the DeFi lending market

The report shows that Aave is the most affected platform, with a value decrease of $27.6 billion. Following are Spark with a $5.4 billion drop, Euler down $2.6 billion, Fluid down $2.4 billion, and Compound down $2.0 billion. In total, these top five platforms account for up to $40 billion of the overall market decline.

Experts say this decline reflects a restructuring phase among the largest DeFi lending platforms. The main causes are the decrease in collateral asset values and forced liquidation of leveraged positions.

GC Cooke, founder of stablecoin management platform Brava, stated: “This is misleading information. The decline in collateral value is mainly due to the falling prices of cryptocurrencies like BTC and ETH. Meanwhile, the demand for borrowing stablecoins remains stable.”

Cryptocurrency market volatility

In reality, the overall cryptocurrency market has undergone a significant correction. Bitcoin, the largest cryptocurrency, dropped from a peak of $126,000 in October 2025 to below $60,000 in early February 2026, before rebounding above $72,000 at present.

In light of these fluctuations, crypto analyst Tochi commented: “It’s not the crypto lending sector shrinking, but rather the overall market capitalization of cryptocurrencies that’s declining.”

According to Tochi, the total market cap of cryptocurrencies has decreased by 45%, from $4.38 trillion in October to $2.48 trillion. This substantial decline has directly impacted the total value locked (TVL) in DeFi lending protocols. Since TVL is calculated based on USD value, and most collateral assets are cryptocurrencies with volatile prices, when prices drop by 30% to 50%, the value of collateral assets is also severely affected, even if users do not withdraw funds.

Aave faces capital outflows and governance instability

Beyond the impact of falling asset values, Aave — the largest lending platform in the DeFi ecosystem — is also experiencing direct capital withdrawals.

Data from DefiLlama shows that the number of Ethereum tokens deposited into Aave decreased from 14.5 million to 12.07 million tokens by early February 2026.

Industry experts link this decline to the overall market situation and ongoing internal disputes within Aave’s decentralized autonomous organization (DAO). Governance disagreements have led some community members to question the platform’s operational model and procedures, raising concerns about Aave’s long-term stability.

Conclusion

The significant decline in the DeFi lending sector reflects a major correction phase across the entire cryptocurrency market. However, as experts have pointed out, this is not a sign of long-term decline but an inevitable consequence of asset price volatility as the market seeks a new equilibrium.