A $2 billion wave of exploits and rising economic pressure has triggered a sharp decline in decentralized finance (DeFi), even as artificial intelligence and social applications gained millions of new users.
According to a Q1 2025 report by DappRadar, DeFi’s total value locked (TVL) fell 27% to $156 billion, while AI and social dapps recorded substantial user growth despite industry volatility.
The downturn in DeFi follows one of the largest crypto hacks in history. In February, Bybit lost $1.4 billion in a breach linked by the FBI to North Korea’s “TraderTraitor” group. Ethereum, the dominant chain in DeFi, dropped 45% in value over the quarter to $1,820. Sui, the hardest-hit top-10 chain, saw a 44% decline in TVL. Ethereum’s own TVL plunged 37% to $96 billion.
Amid the decline, only one top-10 chain gained ground. Berachain, which launched its mainnet on February 6 and distributed $632 million in tokens, accumulated $5.17 billion in TVL by the end of March. The chain also announced a developer testnet and raised $142 million in funding, becoming a rare outperformer in a contracting market.
AI and Social Apps Record Growth
AI and social dapps, meanwhile, posted strong engagement growth. Daily unique active wallets (dUAW) in the AI category rose 29% to 2.6 million, while Social apps increased 10% to 2.8 million. “They’re here, and they’re shaping new user behaviors,” DappRadar said, noting the rise of AI agents across Web3 platforms.
Activity concentrated around platforms like LOL, which rewards users for genuine laughter using AI analysis, and MomoAI, which features digital personas on Solana and TON. Dmail Network and Balance also gained traction by integrating AI into Web3 communications and entertainment. Telegram-integrated UXUY surpassed 10 million users, becoming the largest Telegram wallet globally.
NFT Market Contracts as RWA Gains Momentum
In contrast, the NFT market shrank in Q1. Trading volume fell 24% to $1.5 billion, and sales dropped 10%, signaling reduced high-value transactions. Profile picture (PFP) NFTs maintained dominance with 56% of the volume, while real-world asset NFTs, led by Courtyard, gained market share.
OKX recorded the highest NFT trading volume at $606 million, followed closely by OpenSea at $599 million and Blur at $565 million. OpenSea’s new interface, OS2, supported 14 additional blockchains and helped maintain its lead in sales volume. Pudgy Penguins led all collections with $177 million in volume, while CryptoPunks, despite limited sales, netted $63.6 million.
Hacks continued to erode trust across Web3. Besides Bybit’s loss, meme coins LIBRA and MELANIA collapsed after insiders offloaded tokens, costing users a combined $450 million. Stablecoin protocol Infini was exploited for $50 million, and Phemex suffered a $37 million exchange hack.
With sentiment subdued, developers and users increasingly turned to AI and social applications for new utility. The pivot reflects a broader shift in Web3 priorities as DeFi protocols struggle to regain momentum.
