Binance Research Institute: On-chain data in the first half of 2026 shows that the encryption market

H1 2026 On-chain data: The entire line shrinks, large-scale capital withdrawals

The previous view that crypto capital is only rotating between hot sectors can no longer be compared with the on-chain data for the first half of 2026. A new research report shows that in the first half of this year, decentralized finance, Layer 1 blockchain and Layer 2 activities all experienced extensive and comprehensive shrinkage. The total locked value of the DeFi protocol decreased by $43.4 billion, or 38%; the total market value of the six major Layer 1 networks fell by $246.5 billion, or 42%.

These numbers do not indicate that funds are flowing between different ecosystems, but rather that liquidity and user engagement are ebbing on a large scale. Ethereum spot ETF positions fell to 5.2 million ETH, while positions in decentralized autonomous vaults rose to 7.7 million ETH. The change reflects the withdrawal of institutional capital while the assets controlled by the agreement itself are accumulating-a sign of a broader risk-aversion stance across the market.

Chain indicators fell across the board

User activity on the Layer 2 network has shrunk significantly. From January to June, the number of user actions dropped by about 77%, indicating that the expansion narrative centered on Rollup has not saved these platforms from the downturn. During the same period, Solana's network revenue dropped 64.5%. Among the mainstream L1, only BNB Chain stands out with its deflationary supply mechanism, with an annualized destruction rate of 5.05%. This mechanism has brought comparative advantages to BNB, but has not reversed the overall trend.

These declines challenge the previous view that during the bear market, the new generation of blockchain can operate independently of the trend of Ethereum. It turns out that the contraction is almost uniform. Even chains with unique technological advantages and active developer communities-as shown in recent developer activity rankings-cannot escape the impact of a decline in the economic value of the chain.

Security incidents intensify market downturn

In the first half of 2026, a total of 207 security incidents occurred in the industry, causing losses of US$972 million. While hacks and exploits are not new, such a high density of security incidents has further eroded market confidence during the liquidity crunch. Users and agreements facing capital constraints are less tolerant of unexpected losses. Every major security incident makes it more difficult for remaining participants to find reasons to keep assets on the chain, especially if earnings compress simultaneously with asset prices.

The negative security impact also makes it more difficult to attract new institutional capital. Despite some milestones in long-term tokenization-such as recent reports of real-time settlement of tokenized treasury bonds for the first time-recent risk assessments are still largely limited by operational vulnerabilities. Custodians and asset managers pay close attention to the total number of security incidents when evaluating asset allocation.

Predicting the market to break the trend

There is one area that stands out. Monthly nominal transactions in the market are forecast to surge 86% to US$51.6 billion, driven mainly by the World Cup and a series of non-sporting events. Kalshi and Polymarket combined accounted for 92% of total transaction volume in June. The surge comes against the backdrop of declines in almost all other indicators on the chain. Growth suggests that speculative demand is shifting to products based on event outcomes rather than negotiated pledges or DeFi loans that require long-term capital lock-in and have higher contract risks.

Predicting that the market explosion is a reflection of short-term, high-confidence bets. In a shrinking environment, money flows to tools that settle quickly and rely less on protocol infrastructure. This model is consistent with the characteristics of a market that lacks sustained liquidity depth but still has a pool of active traders.

What does contraction mean?

The research results clearly show that in the first half of 2026, capital is not rotating within the crypto market, but capital is withdrawing. The argument that "sector rotation" is used to explain the stagflation of some tokens and the rise of others cannot match the reality that almost every measurable indicator on the chain is declining. For the second half of the year, any recovery must be based on real demand for block space, rather than on the hope that traders will simply switch to another chain.

If DeFi lending, stablecoin use or Layer 2 activity does not rebound, the risk is that this contraction may solidify into a lower new normal. A few bright spots-forecast markets and BNB's deflationary mechanisms-are not enough to offset structural capital outflows. What's unclear is whether the decline in Layer 2 user actions and Solana revenue is a permanent change in user behavior or just crowding out low-belief participants. The data does not give an answer, but it clearly reveals the severe situation facing everyone still building on the chain.