Over the past five years, Decentralized Finance (DeFi) has transitioned from a niche concept into a functioning, albeit still volatile, alternative to segments of traditional finance. As of November 2025, its total value locked (TVL) hovers in the range of $100–$120 billion, indicating significant activity but not necessarily transformative change.
This TVL figure is less than half of DeFi's peak levels observed in late 2021 and early 2022. During that period, TVL surpassed $250 billion, driven by a straightforward mechanism: minting tokens, labeling them as rewards, and presenting the outcome as sustainable yield. This model initially appeared promising, with token prices rising, early participants profiting simply by being first, and TVL continuing to grow. Essentially, many protocols offered effortless returns, attracting a surge of users eager to capitalize on the opportunity.
The question arises: what led to this decline? Why is today's TVL approximately half of its previous high? The answer lies in the fundamental nature of that yield, which, from an economic standpoint, was never truly real.
DeFi's Synthetic Phase Collapsed, and Real Yield Emerged
At its zenith, DeFi seemed unstoppable. However, a substantial portion of that growth was fueled by synthetic yield—returns generated through token incentives rather than genuine economic activity. Emission-driven systems are inherently fragile because token rewards only retain value as long as new capital continues to flow in. When these inflows diminish, the value of tokens depreciates, yields collapse, and users begin to exit the ecosystem.
This scenario played out as anticipated. Speculative assets lost favor, ephemeral projects vanished, liquidity contracted, and overall activity declined in sync with the broader cryptocurrency downturn. Consequently, the market underwent a purification process, leading to a long-overdue structural reset.
Concurrently, a different form of yield began to gain prominence: real yield. Unlike synthetic returns, real yield is contingent on actual demand and reflects direct participation, such as transaction fees, protocol revenue, or productive computation, rather than token emissions.
This naturally leads to a discussion of Bitcoin (BTC) and its network, one of the few platforms where yield is directly tied to real production. Mining transforms energy into verifiable computational work, and this process defines the network's economic output. The question then becomes: how can users access this production layer without managing mining infrastructure themselves? This is where tokenized hashrate emerges as a solution.
Tokenized Hashrate Bridges Physical Energy and Digital Capital
In essence, hashrate tokenization involves converting computing power into tradable digital assets. Instead of investing in infrastructure, securing power contracts, or managing equipment, users can hold tokens that grant them a share of the actual work performed by a mining facility. This provides access to Bitcoin's industrial layer without the direct involvement of mining operations.
The sheer scale of Bitcoin mining makes this model particularly relevant today. In Texas alone, crypto-mining facilities registered over 2,000 megawatts of power capacity in 2023, a figure that increased to approximately 3,600 megawatts within a year. These numbers signify industrial-level energy demand, confirming that mining has evolved beyond its former status as a secondary activity.
At this juncture, mining functions as a yield-generating industrial sector—capital-intensive, energy-consuming, and fundamental to Bitcoin's economic output. Tokenized hashrate plays a structurally important role by connecting two previously disparate layers: physical production and digital finance.
However, real production alone does not guarantee long-term stability, even with its current rapid development. If the underlying network's architecture cannot sustain this yield over time, the ecosystem risks repeating the expansion-and-collapse cycle that characterized the previous downturn.
Proof-of-Work vs. Proof-of-Stake: Competing Yield Architectures
The sustainability of yield over time is intrinsically linked to the underlying architecture. In Bitcoin's case, this foundation is proof-of-work (PoW). PoW secures the network through energy expenditure and computation, anchoring yield to a real-world input. This makes it essential for production-based models, where energy is converted into work, yielding measurable results. However, focusing solely on Bitcoin overlooks other crucial aspects.
Ethereum (ETH) also warrants attention, partly because it has offered protocol-native returns for an extended period. Since its transition to proof-of-stake (PoS), ETH holders have been able to earn yield by staking assets and participating in network validation. This model is capital-efficient, requires fewer resources, and does not necessitate physical infrastructure. Yet, it is precisely this efficiency that highlights its limitations.
Once a network relies on a mature, low-risk validation mechanism, the scope for significant innovation narrows. This is currently evident with Ethereum. Even Vitalik Buterin has suggested that Ethereum's base layer should adopt a more conservative approach, implying a slower, more incremental development phase. When an architecture ceases to evolve rapidly, the yield it supports tends to stagnate.
PoW, in contrast, is moving in the opposite direction. Value creation is dependent on real production, meaning that as the sector expands, its output becomes more visible and verifiable. For this reason, tokenized hashrate and other PoW-linked instruments are, in my assessment, better positioned for the next cycle. Their returns are grounded in tangible work being performed, making them significantly more resilient.
The Future Trajectory of the DeFi Cycle
The previous cycle, built on synthetic yield, demonstrated the consequences of relying on leverage. The subsequent collapse paved the way for production-based models, with tokenized hashrate representing its most concrete outcome to date. I believe that DeFi's future lies in real yield, underpinned by output and infrastructure.
Ethereum's system, meanwhile, is plateauing. While it may remain efficient, if base-layer innovation slows, its returns risk becoming static or, more critically, fragile. The consequences of yield detaching from real value have already been witnessed. Therefore, DeFi cannot afford to repeat that mistake.
About the Author
Hunter Rogers is the co-founder of TeraHash, a global Bitcoin yield protocol. At TeraHash, Rogers leads ecosystem partnerships, institutional engagement, and community growth initiatives. Prior to joining TeraHash, Rogers was employed at TRON DAO, one of the world's largest blockchain networks, where he served as the Senior Ecosystem Development and Investment Lead. During his tenure, Rogers facilitated several multi-million dollar institutional deals and played a pivotal role in expanding TRON's global developer and user community to millions of participants. His primary objective is to establish TeraHash as the institutional benchmark for Bitcoin-native yield, transforming physical hashrate into transparent, liquid, and composable financial products accessible to both institutional and individual participants.