The crypto market is going through an industry shakeout that the report compares to the dot-com era. According to RootData, more than 100 crypto projects have shut down, filed for bankruptcy, or permanently ceased operations since the start of 2026, and the pace is still picking up.
In the final week of July alone, BitMEX, BitMart, Movement Labs, and Storj Labs all announced they were shutting down. The wave is not confined to one corner of the market. Exchanges, wallets, DeFi lending protocols, NFT marketplaces, and Layer 1 blockchains have all been hit.
Moonbeam, a Polkadot parachain, also failed to survive the downturn. It permanently stopped operating on July 31, leaving some users who did not bridge their assets out in time with funds stranded on-chain.
Layer 2 growth gave way to overcrowding and consolidation
Ethereum’s Layer 2 ecosystem, which had been one of the market’s fastest-growing segments, is now in a period of adjustment. In 2023, technical advances sharply reduced transaction costs and drew in a large number of operators. New Layer 2 networks appeared rapidly, but that expansion also produced heavy crowding, intense competition, and weak differentiation.
Espresso Systems CEO Ben Fisch said the market had become saturated with general-purpose Layer 2 networks offering highly overlapping functions. He said the sector is now entering a consolidation phase, though that does not mean the Layer 2 ecosystem as a whole is in decline.
People in the industry cited in the report said the shakeout is better understood as part of crypto’s broader maturation rather than a problem unique to Ethereum scaling. Marek Olszewski, co-founder of Celo Layer 2, said consolidation and blending are happening across DeFi, DEXs, and infrastructure providers, and that the products that remain will be the ones users genuinely rely on.
Coin Bureau founder Nick Puckrin said, “When you hear about one project shutting down, there may be 10 others quietly closing in the background. This could be the ‘creative destruction’ that clears the way for the next bull market cycle.”
Chainway Labs CEO Orkun Mahir Kılıç said fundraising has become harder and investors have grown more selective, pushing the market back toward fundamentals. In his view, the projects that survive will need a clear business model and products that solve real user needs.
The “token equals revenue” model is breaking down
One core issue stands out behind the shutdowns: usage does not automatically translate into revenue.
Many projects now nearing closure never built meaningful revenue in the traditional sense. Teams paid engineers with their own tokens, subsidized liquidity with those tokens, and in some cases even used them to cover security audit costs. As long as token prices held up, the model could keep running.
That support has weakened sharply. The report says most altcoins have fallen 70% to 90% in the recent bear market, quickly eroding what had looked like adequate financial runway.
Tally, a DAO governance platform, had provided governance services for more than 500 protocols including Uniswap, Arbitrum, and ENS. It had also processed more than $1 billion in payments and helped secure as much as $80 billion in on-chain assets, yet it still could not keep operating.
Step Finance, a Solana portfolio tracking and analytics platform, suffered a phishing attack in January. Hackers stole 261,854 SOL from a multisig wallet, worth about $35 million at the time. The team shut the platform in February after follow-on financing failed to materialize.
Cross-chain settlement protocol Everclear posted monthly volume of $500 million at one point, but its partners took longer than expected to go live, and it failed to build enough commercial scale before running out of funds.
Across these cases, the pattern is similar: strong on-chain activity did not produce stable operating income, and revenue remained heavily tied to the projects’ own tokens. Once the bear market set in, the business model could lose support quickly.
Security breaches can now become the final blow
The shutdown wave is unfolding at the same time as what the report describes as DeFi’s most severe security crisis to date. Blockaid estimates that on-chain attacks caused $1.1 billion in losses in the first half of 2026, already above the full-year total for 2025.
April was the busiest month for attacks in the history of the crypto industry, according to the report. Kelp DAO was hit on April 18 and lost about $293 million. Drift Protocol was hacked on April 1 for $285 million. That incident involved a North Korea-linked hacking group, and the attackers spent six months infiltrating an exchange through social engineering rather than exploiting a smart contract code flaw.
TRM Labs estimates that North Korea-linked hacking groups accounted for 66% of global crypto hacking losses in the first half of 2026, up from 64% in 2025.
The report says the bigger change is what happens after an attack. In the past, communities often rallied and used treasury funds to absorb the damage. Now, those reserves have also been hit by the bear market, while venture investors are less willing to step in with support.
Market liquidity has not fully recovered from the roughly $19 billion leverage liquidation wave in October last year, which has left altcoin prices more sensitive to headline risk.
Zombie protocols are creating another layer of risk
A project shutting down does not mean its code disappears.
When teams disband or companies enter bankruptcy, smart contracts that were already deployed on-chain can keep running. In July, Lazy Summer Protocol suffered a $6 million attack, and the vulnerability was traced back to Stream Finance, which had already collapsed in November 2025.
Moonbeam’s permanent shutdown made the issue even more acute. The chain stopped producing blocks on July 31, and assets still locked in Moonbeam DeFi protocols, including positions in lending protocol Moonwell, could no longer be managed normally. The contracts still exist, but there is no one left to intervene.
Security researchers have warned that abandoned smart contracts often contain unpatched vulnerabilities. Audit reports that users once relied on only apply to specific versions of code at a specific point in time. As more projects fail, the number of contracts still running without active maintenance is rising across blockchains.
The projects that remain are the ones with real revenue
The projects that have survived this bear market, and in some cases kept growing, tend to share one trait: their income comes in dollars rather than from their own tokens.
Decentralized perpetuals exchange Hyperliquid passed $1 billion in cumulative fees on June 30, reaching that mark in less than two years. Even as the market weakened, its trading volume kept growing, and it now accounts for about 70% of the decentralized perpetual futures market.
Aave, the leading DeFi lending protocol, had more than $12 billion in deposits as of July 2026 and generated more than $100 million in annualized borrowing fee revenue. Even after the Kelp DAO attack in April triggered $8.4 billion in deposit outflows, Aave continued operating normally.
Ether.fi, a liquid restaking protocol, moved earlier to diversify its revenue base before the bear market deepened. Its co-branded crypto payment card now contributes about half of protocol revenue. In the second quarter of 2026, transaction fee revenue hit a record $2.72 million, while total value locked stood at $7.8 billion.
The report’s conclusion is straightforward: the projects that make it through this cycle may not be the ones with the most advanced technology, the biggest funding rounds, or the largest communities. The ones that last are more likely to be those that built products users are willing to pay for.