New Realities and Challenges in Decentralized Finance Decentralized Finance (DeFi), once at the heart of the global digital financial market, has encountered an unexpectedly harsh winter. News that over 20 projects have either gone bankrupt or ceased operations since Q1 2026 alone highlights the structural issues and future prospects of this market. It is now time to pose new questions from the perspective of 'decentralized financial innovation' that DeFi once promised. Among the bankrupt projects is Tally, a prominent platform that provided governance services to over 500 Decentralized Autonomous Organizations (DAOs), including Uniswap, Arbitrum, and ENS (Ethereum Name Service). The failure of such well-known projects carries significant implications for future market conditions. Tally announced its service termination, stating, "We decided to cease operations after careful consideration of the current market situation and the sustainability of our business model." Behind this official statement lies a serious question: Were these projects, which championed 'decentralization,' based on overly optimistic assumptions? The restructuring of the DeFi market is not merely the weeding out of unprofitable projects but carries the risk of cascading bankruptcies. Critics point out that the DeFi sector is particularly vulnerable due to its complex interconnectedness, where the failure of one project can have a ripple effect on others. This starkly demonstrates that DeFi's independence and autonomy, which appeared attractive to financial novices, have in fact functioned as a single, unstable ecosystem. The structural vulnerability, where the liquidity depletion of one project can spread to other connected protocols, creating a domino effect, has been clearly exposed through this crisis. Furthermore, the weakness in the chain game and NFT (Non-Fungible Token) markets is becoming increasingly apparent, coupled with a sharp decline in investor interest. Instances where chain games enjoyed by users are shutting down, and NFT projects purchased for large sums are barely surviving, are raising skepticism in the Korean market as well. The phenomenon of many projects scaling down or shutting down their operations suggests fundamental business model issues beyond mere market correction. Amidst this trend, a larger question arises: can the entire Web3 ecosystem regain trust and present realistic innovation strategies? Weaknesses in the DeFi Ecosystem Revealed by Cascading Failures So, why is this happening? A combination of shrinking liquidity in the cryptocurrency market, rising operational costs, and shifts in market discourse has pushed many projects to the brink of survival. Firstly, there's a global liquidity contraction. The global economy is experiencing a rapid decrease in liquidity amidst a tight monetary policy stance. Cryptocurrencies are not exempt from these economic changes. Secondly, the method of creating liquidity pools, once considered central to the DeFi ecosystem, has proven to harbor greater long-term risks than anticipated. When assets were withdrawn in the short term, there was insufficient financial resilience to defend against it, ultimately leading to cascading failures. Increased operational costs have also become an unbearable burden for many projects. Particularly noteworthy is the impact of enhanced transaction monitoring by centralized exchanges on the overall market. A combination of factors, including increased obfuscation tactics by sanctioned actors and a widespread exodus from centralized platforms, is also influencing illicit virtual asset activities. This demonstrates that changes in the regulatory environment are not merely legal in nature but are reshaping the market structure itself. As surveillance systems are strengthened, some projects are struggling with business sustainability due to increased compliance costs, while on the other hand, attempts to circumvent regulations are emerging, further increasing market uncertainty. However, there is also a view that the market should not be seen solely pessimistically amidst these difficulties. From the perspective that restructuring can eliminate inefficiencies in a particular industry and foster healthy innovation, the cryptocurrency market also has the potential to advance through this process. Experts analyze that this restructuring could be a process of eliminating market inefficiencies and building a healthier ecosystem in the long run. While individual investors and small-to-medium project operators will undoubtedly face significant pain in the short term, there is also room to anticipate positive outcomes in the long term, such as the survival of competitive platforms and the establishment of investor safeguards. If only projects that create real value survive through market self-correction, it could ultimately lead to enhanced investor protection and market trustworthiness. Selective Survival Amidst Crisis and Korea's Challenges Howe
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