Decentralized finance (DeFi) liquidity saw net outflows in October, even as protocols redistributed their holdings, with on-chain capital rotating toward Bitcoin-based protocols as well as Hyperliquid and Robinhood.

DeFi liquidity shifted between chains and protocols throughout the month, stepping back with a roughly 7% contraction in total value locked (TVL), according to CryptoRank data (also shared on X). The market capitalization of DeFi protocol tokens contracted a net 8.4% over the past 30 days. TVL serves as a proxy metric, reflecting both user flows and the value of collateral assets. That distinction means an aggregate TVL decline does not by itself show that every protocol experienced withdrawals, since collateral values and user activity can affect the measure together.

DeFi tokens reacted more sharply than the protocols themselves, logging net losses of more than 20% over the past month, while the protocols recorded comparatively smaller outflows of value. The slowdown cuts short a three-month streak of TVL expansion driven by Ethereum staking and lending.

Bitcoin-Based DeFi Leads Growth

Bitcoin-based DeFi protocols were the fastest gainers of the past month, as BTC held between $80,000 and $85,000. In total, BTC-based DeFi protocols hold $6.19 billion in value, a 39.19% expansion over the past 30 days.

Growth was concentrated in a handful of venues, while most older applications stagnated. Over the past 30 days, Surge Credit, Maya Protocol, and Symbiosis were in the green, while other apps showed small outflows below 5%.

For now, most Bitcoin-based DeFi still relies on wrapped versions of BTC running on Ethereum. Aave V4 is seen as a potential alternative, using Babylon Labs collateral for lending without wrapping the coins on Ethereum. Wrapping assets adds another layer of risk, as the underlying collateral is locked in smart contracts that could be attacked. BTC holders are seeking native ways to put their holdings to work through lending without taking on that additional exposure.

Base Overtakes Solana as Arc and Morpho Attract Deposits

Liquidity also rotated among protocols, with some apps and chains defying the wider outflows. Over the past month, Base flipped Solana to become the third-largest liquidity venue per DefiLlama, standing behind Ethereum and Bitcoin — growth previously reported by Cryptopolitan.

The month's most significant growth came from Arc, a newly launched mainnet and liquidity app. Arc expanded its holdings by 21% in October, holding $617.8 million as of October 28, per DefiLlama.

While sector leaders Lido and Aave lost notional TVL, Morpho expanded by more than 3% over the past 30 days, showing that users moved funds into specific vaults and liquidity venues. Morpho has retained its usual rate of daily active users over the past year — around 16.1K per day, close to the 2026 baseline — though activity has still not recovered to levels seen at the end of 2025. Despite flat user numbers, the protocol has seen wider adoption through its integrations with other wallets and apps.

DeFi is reworking its allocations and lending-rate models, with Morpho driving innovation in lending rates. The protocol recently integrated with Ledger for direct access to some of its vaults, and has also begun onboarding tokenized assets as collateral, unlocking additional value beyond crypto-native collateral. These developments make protocol integrations, collateral types, and the distribution of deposits important indicators alongside headline TVL.

The rotation follows a year in which DeFi had to adapt to a series of chain and protocol shutdowns, redirecting users and liquidity, as Cryptopolitan reported. Over the past year, staple protocols including Balancer, Radiant, ZeroLend, and Seamless shut down, due to a mix of hacking losses and low liquidity.

Source: Cryptopolitan