Opinion: Incentive-driven DeFi will disappear by 2026

Odaily Planet Daily reports that Eli5DeFi posted on the X platform stating that the incentive-driven DeFi model will disappear by 2026. DeFi protocols tend to lose users when incentives end, fundamentally because risk-adjusted returns revert to their true levels. The growth of locked value (TVL) during the incentive phase often reflects subsidized participation rather than sustainable usage demand or fee income.

It points out that the “renting liquidity” model has three stages: during the incentive period, high emissions attract funds to compensate for risks; in the normalization phase, incentives decrease and real returns become apparent; during the withdrawal phase, after returns normalize, funds recalculate costs and exit. The collapse of retention rates is due to incentives temporarily masking structural weaknesses, including the risk of impermanent loss from subsidies, the fact that returns are essentially marketing expenses rather than income, demand being highly internalized, and high friction costs.

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