'Liquidity Crisis': $12B in DeFi Liquidity Sits Idle as 95% of Capital Goes Unused

This inefficiency disproportionately affects retail liquidity providers, with 50% losing wealth owed to impermanent loss, and nett deficits exceeding $60 million, a caller study finds.

Nov 22, 2025, 4:07 p.m.

A caller study from decentralized speech aggregator 1inch has shown a increasing situation successful decentralized concern (DeFi): the immense bulk of superior deployed successful large DeFi liquidity pools is not being utilized effectively.

According to information presented astatine Devconnect Buenos Aires, betwixt 83% and 95% of liquidity successful apical pools, including Uniswap v2, v3, and v4, arsenic good arsenic Curve, remains idle for astir of the year. That means billions of dollars beryllium successful astute contracts without earning fees oregon generating meaningful returns.

In Uniswap v2 alone, lone 0.5% of liquidity typically falls wrong progressive trading terms ranges, rendering astir $1.8 cardinal ineffective according to the report.

This inefficiency hits retail participants the hardest. Research cited successful the study shows that 50% of liquidity providers (LPs) are losing wealth erstwhile factoring successful impermanent loss, with nett liquidity supplier deficits exceeding $60 million. In 1 notable example, a azygous Uniswap v3 excavation saw implicit $30 cardinal successful mislaid profits owed to Just-in-Time liquidity manipulation.

Part of the occupation stems from the sheer fig of fragmented pools, with much than 7 cardinal crossed the ecosystem. This complexity not lone dilutes liquidity but besides makes it harder to way trades efficiently, further reducing returns for liquidity providers.

'New approach'

To 1inch, the solution is its Aqua protocol, which is designed to fto DeFi applications stock the aforesaid superior basal crossed aggregate strategies without compromising idiosyncratic custody.

“We code this occupation by introducing a caller approach," 1inch cofounder Segej Kunz told CoinDesk successful an interrogation astatine Devconnect Buenos Aires. "We let radical to conscionable support assets successful the wallet, and we let radical to make virtual trading positions."

To Kunz, the existent concern constitutes a "DeFi liquidity crisis."

The protocol besides aims to little the obstruction to introduction for developers who privation to utilize this heavy liquidity. "Any existing DEX close present tin beryllium implemented nether 10 lines of code," Kunz added, noting that the extremity is to supply "a instauration to physique connected top" truthful that liquidity providers tin "hold assets successful the wallet" alternatively than locking them wrong analyzable protocol contracts.

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