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Zerolend Shuts Down After Three Years as DeFi Lending Protocols Face Market Pruning

TL;DR

• Polynomial also ceased operations and shelved its token generation event.
• Alpaca Finance will sunset activities by end of 2025 due to revenue struggles.
• Elixir’s deUSD collapsed after losses linked to Stream Finance.

Zerolend, a multichain decentralized lending protocol, announced it will shut down its lending markets after approximately three years of operations. The team cited unsustainable conditions including inactivity or sharp liquidity drops across supported chains, oracle providers discontinuing support, hacks and exploits, and thin profit margins leading to prolonged losses.

The protocol set most markets’ loan-to-value (LTV) ratios to 0%, disabling new borrowing while allowing only withdrawals. The team urged users to withdraw funds immediately via the app. For assets stuck in low-liquidity chains, the protocol promised upgrades enabling recovery.

Zerolend launched in early 2024 and expanded on Layer 2 networks including Linea and zkSync. Its current total value locked (TVL) stands at $6.6 million, near all-time lows following the wind-down announcement. The team described the shutdown process as an attempt to end operations honorably rather than shocking users with abrupt closure.

Multiple DeFi Protocols Exit as Market Matures and Weaker Projects Cannot Sustain Operations

Zerolend joins several protocols shutting down or restructuring. Polynomial, a DeFi derivatives protocol, announced it ceased operations around February 14, 2026. The shutdown includes forced liquidations, liquidity layer closure, and full chain termination. Polynomial initially planned a token generation event (TGE) for Q1 2026 but shelved it after determining the product lacked viability. The team stated it will redirect efforts toward new projects with priority for early backers.

Alpaca Finance, a leveraged yield farming and lending protocol on BNB Chain, announced plans to fully sunset activities by end of 2025, citing revenue struggles and delisting from major exchanges including Binance. Elixir’s deUSD shut down after accumulating heavy losses linked to the $93 million collapse of Stream Finance, a protocol it connected with.

The closures represent what analysts call natural pruning in a maturing environment rather than mass exodus. Most protocols facing shutdowns operate at smaller scale, while larger, more established projects continue attracting capital and user activity. 

The pattern suggests the DeFi sector consolidates around protocols demonstrating sustainable unit economics and resilient infrastructure rather than maintaining proliferation of marginal products unable to cover operational costs or withstand market stress.