@enidbird
When a DeFi protocol suffers a hack, contagion spreads to peer protocols. TVL often declines across the sector as capital flees. Swap fee structures widen, reflecting risk repricing. This “systemic crowding out” effect can be quantified by measuring sector-wide TVL beta relative to the hacked protocol. Typically, correlated protocols lose 10–20% TVL within a week. Recovery speed depends on audit assurances and narrative resilience. Thus, systemic risk modeling must account for correlated design vulnerabilities. Market contagion shows crypto DeFi ecosystems operate as interconnected risk clusters.
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