Between July 21 and 25, the total stablecoin market cap increased by $4.505 billion to reach $265.22 billion, a 1.73% expansion. Over the same timeframe, total value locked (TVL) in DeFi dropped from $140.804 billion to $135.934 billion, a 3.46% drawdown.
While the rise in stablecoin supply could be interpreted as a sign of incoming capital, the simultaneous drop in DeFi TVL tells us that the new liquidity isn’t being deployed; it’s waiting.
Price stability paired with a declining TVL and expanding stablecoin base indicates a shift in the market. Capital seems to be rotating out of yield-bearing DeFi positions into liquid, passive stablecoins.
The TVL to stablecoin supply ratio, an effective proxy for on-chain capital efficiency, fell from 0.535 to 0.513 over the past three days. The drop suggests that on-chain capital is growing more risk-averse. With fewer stablecoins being deployed in DeFi protocols and more sitting idle in wallets, bridges, and exchange balances, traders seem to be preparing for another bout of volatility.
The combination of growing stablecoin supply and falling TVL is counterintuitive in a healthy, bullish market, where stablecoin mints are often a precursor to yield deployment and leverage. The change we’ve seen in the past three days implies that traders have become slightly more risk-averse.
This may be due to several different factors. DeFi lending rates across protocols remain low, reducing the appeal of stablecoin carry trades. Leverage unwind on perps and restaking positions may be spilling into DeFi TVL. Larger capital pools could also be waiting for new opportunities to deploy.
While DeFi TVL fell nearly $5 billion over three days, ETH managed to stay afloat, even posting a modest gain. This decoupling implies that ETH price action is driven more by structural factors than organic DeFi growth.
That said, if idle stablecoins on Ethereum and L2s eventually rotate back into DeFi through restaking, LSTs, or new incentive programs, ETH could benefit as demand for blockspace rises and staking-derived fees increase. Conversely, if stablecoin capital remains undeployed and ETH fails to hold its current range, the lack of DeFi bid support could become a tailwind for ETH/BTC rotation.
