The Total Value Locked (TVL) and market capitalization are showing a divergence at present despite moving in unison in the past. The higher market prices and the less TVL compared to the market prices shows that the crypto prices may be absorbing the hype and speculation driven by ETFs and centralized exchanges rather than DeFi protocols.
Divergence in market cap and TVL
A crypto analyst said he observed that there has been a divergence in the market cap and the TVL in DeFi, unlike the last cycle. In particular, the DeFi protocols did not make a new high despite the market cap reaching a new high.
During the last rally, the TVL hit $177 billion abruptly even as the crypto market cap increased. However, despite the crypto market cap making a new high, the TVL did not rise to a new high as expected. Currently, the TVL locked in DeFi is at just above $90 billion, as it makes a new higher low as shown in the chart below.
When Total Value Locked (TVL) fails to make a new high while the overall crypto market cap does, it suggests that the rally is not being driven by deep DeFi participation like in the previous cycle. In the last bull run, rising prices were accompanied by aggressive yield farming, heavy liquidity provision, and strong on-chain risk appetite, which pushed TVL to record levels.
On-chain liquidity shrinks with less fund in DeFI
When there’s little capital flowing into DeFi while the overall crypto market cap rises, it creates a distinct market dynamic. On-chain liquidity becomes thinner, meaning fewer funds are actively locked into protocols like lending, staking, or liquidity pools, which reduces the depth and resilience of DeFi markets. At the same time, less leverage and yield speculation occur, so price gains are driven more by straightforward spot buying rather than aggressive risk-taking, making the rally relatively conservative.
This often results in more concentrated gains, typically led by major assets like Bitcoin, rather than a broad-based rally across altcoins. Consequently, “altseason” conditions are weaker, because DeFi and smaller altcoins are usually where capital rotates to chase higher-risk, higher-reward returns. In short, the market may rally in price, but the underlying DeFi ecosystem sees limited participation and slower capital movement
