DeFi Bear Market Yields: Hyperliquid & Liquid Staking in Feb 2026

This Week in DeFi: February 1 - February 7, 2026

Another week, another reminder that capital preservation takes precedence in a bearish market. We’re still navigating choppy waters, feeling the lingering effects of last year's fund losses—around $2.5 billion was siphoned off by hacks and scams in the first half of 2025 alone. While DeFi's Total Value Locked (TVL) showed remarkable resilience, rebounding to $170 billion by September 2025 before settling around $140 billion as of December, yields on major protocols have largely retreated to the single digits. This demands a more tactical approach to generating returns.

📊 Top Yields This Week

Bear markets are not about chasing the highest percentage, but rather finding the best risk-adjusted returns. That means prioritizing battle-tested protocols and understanding the underlying mechanics.

Stablecoin Yields

In this environment, stablecoins remain the bedrock for many, offering a relatively safer haven if you manage counterparty and smart contract risks diligently.

Our pick: Aave V3 on Ethereum. While not the absolute highest APY, its unparalleled security track record and deep liquidity, especially on Ethereum mainnet, make it a solid choice for conservative yield. The cost of gas on Ethereum can be a barrier during congestion, but for larger positions, it’s a small price for robust security. You can assess potential borrowing scenarios using our Aave Position Simulator.

ETH Yields

Liquid staking derivatives (LSDs) continue to offer a compelling way to earn yield on your ETH without locking it up, but yields are modest.

Our pick: Lido's stETH. It remains the most liquid and widely integrated liquid staking token. Its extensive adoption across DeFi protocols provides maximum flexibility, even if its yield is slightly lower than some newer entrants. The key here is not just yield, but also composability and minimal slippage if you need to exit your position. For those looking to manage collateralized debt positions with stETH, understanding your Health Factor Calculator is critical.

High-Risk/High-Reward: Diving into Hyperliquid & Its Ecosystem

For those willing to take on more calculated risk, Hyperliquid has been a standout performer in TVL growth, leading the surge according to recent data. Its ecosystem offers intriguing opportunities, but remember: higher potential reward always means higher risk.

Hyperliquid HLP, the liquidity provider token for their perpetuals DEX, is one such avenue. With a current TVL of $0.29 billion, it's attracting significant capital. Liquidity providers earn fees from trading volume and liquidations. However, this isn't a guaranteed fixed income; HLP exposes you to market maker risks—essentially, you're taking the other side of traders' bets. If the market moves sharply against your pooled assets, you could experience impermanent loss. What we've noticed is that while specific APYs are highly dynamic, strong trading activity during volatile periods can lead to outsized returns, but the opposite is also true during quieter times.

Beyond HLP, the Hyperliquid ecosystem is developing its own liquid staking derivatives. Kinetiq kHYPE and stHYPE are emerging options, with kHYPE boasting a significant $0.73 billion TVL and stHYPE at $0.14 billion. These tokens generally aim to provide liquid exposure to the Hyperliquid protocol's value accrual, often through staking or other mechanisms. However, they carry the direct price risk of the underlying HYPE token itself. As we saw last year, the HYPE token soared 50% in May amidst a bear market, only to slump 26% from its July peak. This volatility is a core characteristic, meaning while potential kHYPE yield or stHYPE yield might be attractive, the value of your principal can swing significantly. Always monitor token performance on platforms like DefiLlama or Debank.

📰 News That Mattered

DeFi TVL Shows Resilience Amidst Bearish Sentiment

Despite the prevailing bearish sentiment, the DeFi sector has shown remarkable resilience in its Total Value Locked. CoinDesk reported TVL rebounded to $170 billion by September 18, 2025, effectively erasing the losses seen during the Terra-era bear market. While it has since pulled back slightly to approximately $140 billion as of December 9, 2025, this rebound indicates a maturing market. Ethereum remains the undisputed king, holding 59% of all DeFi capital. However, newer chains and L2s are gaining ground, with Base, HyperLiquid, and Sui collectively topping $10 billion in TVL. This shift points to a more multi-chain future, but also necessitates careful security considerations.

Hyperliquid Leads TVL Surge While HYPE Token Volatility Persists

Hyperliquid has undeniably been a growth story, leading the surge in DeFi TVL on its respective chain. Its success reflects a growing appetite for efficient, low-latency perpetuals trading. Yet, this growth isn't without its challenges. The HYPE token, central to the ecosystem, continues its volatile dance. After an impressive 50% rally in May 2025, it entered a bearish phase, slumping 26% from its July peak. This constant fluctuation underscores the need for deep understanding if you're engaging with HLP or liquid staking derivatives like kHYPE and stHYPE, as their value and associated yields are inherently tied to HYPE's performance. It’s a classic high-beta play within DeFi growth protocols weekly observations.

Security Remains a Top Concern Following Billions in Losses

One sobering statistic that frames our current market environment is the $2.5 billion lost to hacks and scams in the first half of 2025. This isn't just a number; it represents real capital, real projects, and real trust eroded. While protocol audits are crucial, even well-vetted code can have vulnerabilities. The lesson here is clear: conduct thorough due diligence, understand the smart contract risks, and diversify your exposure. Common mistake: assuming a protocol is 'too big to fail' or that audits guarantee security. Always assume risk.

👀 Opportunities to Watch

1. Restaking Narratives: Keep an eye on the evolving restaking landscape. Protocols building on EigenLayer's infrastructure could unlock new layers of yield for stETH and other LSDs. The mechanisms are complex, but the potential for enhanced liquid staking opportunities 2026 is significant. Always understand what you're restaking into.
2. L2 Growth & Incentives: As Ethereum continues to scale through Layer 2s, expect more protocols to launch on or migrate to solutions like Arbitrum, Optimism, zkSync (which is currently trending), and Base. New ecosystems often come with initial liquidity mining programs and potential retroactive airdrops for early users.
3. Cross-Chain Bridging Innovations: With chains like Sophon Bridge seeing $0.14 billion in TVL, the demand for secure and efficient cross-chain asset transfers is evident. Innovations here could unlock fragmented liquidity and create new yield opportunities.

⚠️ Risk Watch

• Smart Contract Vulnerabilities: The $2.5 billion lost in H1 2025 should be a stark reminder. Even audited code can fail. Look for long-standing protocols with substantial bug bounties and active developer communities.
• Liquidation Risk in Volatile Markets: With markets remaining bearish, collateralized debt positions (CDPs) are under constant threat. Always monitor your collateral ratio. A common mistake is borrowing at max LTV; I've seen countless positions wiped out when prices dip. Use a Liquidation Price Calculator to know your exact danger zones and set alerts. Aim for a health factor above 1.5, especially in uncertain times. Below 1.1 health factor, you're in the danger zone.
• Concentration Risk in Growth Protocols: While Hyperliquid leads in TVL growth, a significant portion of its ecosystem's value is tied to the performance of the HYPE token. Over-reliance on a single protocol or its associated tokens, particularly those with high volatility, can amplify losses during downturns.

🛠️ Tool of the Week

Our Health Factor Calculator is invaluable in these market conditions. It allows you to input your collateral and borrowed assets on lending platforms like Aave or Compound and instantly see your liquidation risk. In a bear market, understanding precisely how much a token's price can drop before your position is liquidated is not just important—it's absolutely essential for survival. Use it to stress-test your positions against various price scenarios before committing capital.

Looking Ahead

Next week, we'll be watching for any shifts in macro sentiment and how that impacts capital flows into DeFi. Expect continued focus on Layer 2 scaling solutions, advancements in restaking, and further iterations on risk-adjusted DeFi yields as protocols compete for liquidity. We'll also be paying close attention to any regulatory developments that could shape the landscape for the remainder of Q1 2026. Stay vigilant, manage your risk, and keep your health factors healthy.

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Disclaimer: This content is for educational purposes only and should not be considered financial advice. DeFi protocols carry inherent risks including smart contract vulnerabilities, market volatility, and potential loss of funds. Always do your own research and never invest more than you can afford to lose.

Ready to put this knowledge into action? Try our Aave Position Simulator to simulate your positions and optimize your DeFi strategy risk-free.