Incentive-driven DeFi is disappearing, and 2026 will be the year of a true reshuffle.

2026-01-17 08:36:42

According to the latest news, industry analyst Eli5DeFi stated on the X platform that the incentive-driven DeFi model will disappear by 2026. This view touches on the core issue of the DeFi ecosystem: the current high growth of many protocols is essentially a false prosperity masked by token subsidies. When incentives end, the true economic model will surface.

The Three-Stage Cycle of Incentive-Driven Models

Eli5DeFi refers to incentive-driven DeFi as a “liquidity rental” model, which can be divided into three distinct stages:

Stage	Characteristics	Phenomena
Incentive Period	High emissions compensate for risk	Rapid TVL growth, attracting large amounts of capital influx
Normalization Period	Incentives gradually decrease	Real returns become apparent, some users begin to exit
Withdrawal Period	Returns stabilize	Funds reassess cost-effectiveness, large-scale withdrawals occur

The key issue with this cycle is that the TVL growth during the incentive period often does not reflect genuine demand or fee income, but short-term arbitrage driven by subsidies. When subsidies stop, user retention collapses.

Hidden Structural Weaknesses

The reason incentives can temporarily sustain high retention is that they mask several fundamental problems in DeFi protocols:

Impermanent Loss Risk: The risks faced by liquidity providers are suppressed by token subsidies; the real risk-adjusted returns are actually very low
Yields Are Essentially Marketing: Many so-called “returns” are actually token inflation, which is marketing expenditure rather than genuine income
Demand Is Highly Internalized: Users’ main motivation to participate comes from incentives, not from genuine functional demand for the protocol
High Friction Costs: Trading slippage, gas fees, and other costs are overlooked under the cover of incentives

The existence of these issues means that many DeFi protocols’ economic models are fundamentally unsustainable once incentives are removed.

What Truly Sustainable DeFi Needs

Eli5DeFi believes that only when the economic model remains effective after normalization of incentives can retention truly improve. This means protocols must:

Address impermanent loss and principal risk, ensuring risk-adjusted returns are genuinely reliable
Anchor yields to real trading demand and fee income, rather than token inflation
Expand the ecosystem to increase genuine revenue sources and improve capital efficiency
Reduce friction costs, lowering user participation barriers

Insights for the Current DeFi Ecosystem

This perspective reflects an ongoing market cleanup. Many so-called “high-yield” DeFi projects are mainly attractive due to incentives rather than real value. The disappearance of incentive-driven models in 2026 is essentially a market deep cleansing—protocols built on real demand and sustainable economic models will survive, while those relying on incentives will gradually exit.

From an evaluation standpoint, future DeFi should be assessed based on sustainable income, capital efficiency, and risk-adjusted returns, rather than easily manipulated figures like TVL and annualized yields.

Summary

The disappearance of incentive-driven DeFi models is fundamentally a market return to rationality from false prosperity. This is not the decline of DeFi but its maturation. Truly competitive protocols are those that users are willing to use even without incentives. The reshuffle starting in 2026 has already begun; the key going forward is which protocols can truly solve impermanent loss, improve capital efficiency, and establish sustainable revenue models. This will be the watershed moment for DeFi’s future.

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