Opinion: Incentive-Driven DeFi Will Disappear by 2026

Odaily reported that Eli5DeFi posted on platform X, stating that the incentive-driven DeFi model will disappear by 2026. DeFi protocols lose users when incentives end, essentially because risk-adjusted returns revert to their true levels. The growth in Total Value Locked (TVL) during the incentive phase often reflects subsidized participation rather than persistent usage demand or fee revenue.

It pointed out that the "rented liquidity" model has three stages: the incentive period attracts capital by compensating for risks with high emissions; the normalization period sees reduced incentives and the emergence of real yields; the exit period involves capital recalculating costs and withdrawing after returns normalize. The collapse in retention rates stems from incentives temporarily masking structural weaknesses, including subsidized impermanent loss risk, yields that are essentially marketing expenses rather than revenue, highly internalized demand, and high friction costs.

Eli5DeFi believes that retention rates can only improve if the economic model remains effective after incentives normalize. Protocols must address impermanent loss and principal risk, anchor yields to real demand rather than token inflation, and increase revenue sources by expanding the ecosystem. Future DeFi should be evaluated based on sustainable revenue, capital efficiency, and risk-adjusted returns.