SUI Faces Capital Flight In Financialisation Era Test

Total value locked (TVL) pushed past the $2bn threshold, propelling SUI into the top ten chains by TVL, just behind DeFi bellwethers like Arbitrum. Capital inflows followed usage, reinforcing the narrative that SUI was transitioning from a high-throughput experiment into a credible liquidity venue.

From April onward, a series of protocol improvements, notably the Nautilus release, and institutional interest for SUI, reignited activity across the network. Trading volumes surged across both spot DEXs and perpetual venues, while stablecoin supply expanded in parallel, crossing the $1bn threshold.

Yet despite strong fundamental growth headlines, price action has painted a more fragile picture. Following its Jan 2025 peak, SUI retraced sharply, eventually sliding back toward its Sept 2024 lows and ranking among the weakest performers in the Layer-1 cohort during the broader market drawdown.

(Source: TradingView)

The divergence between expanding ecosystem metrics and deteriorating token performance raises a key question. Was the earlier rally driven primarily by structural adoption or by reflexive liquidity cycles that have since unwound?

Incentive driven momentum

While October will be remembered as one of the most difficult months in the history of digital assets, SUI decentralised exchanges (DEX) volume surged to a record $22.24bn, the highest monthly figure in the network’s history. In SUI terms, the network’s TVL reached an all-time high of 889.5mn SUI tokens in late October.

The headlines pointed to breakout growth. Beneath the surface, however, the expansion was far from broad-based.

(Source: DefiLlama)

Momentum (MMT), a newly launched DeFi protocol backed by prominent industry names on SUI, accounted for the vast majority of activity. At its peak, the protocol represented 86.3% of all DEX volume on the eve of November and represented nearly one-third of the network’s total TVL (roughly 250mn SUI tokens), with Momentum protocol deposits tripling within a single month.

The catalyst was the 4 Nov Momentum token generation event (TGE). In the weeks leading up to it, capital rotated aggressively into the protocol as traders positioned for potential airdrop allocations. Activity accelerated mechanically. Volume surged, deposits climbed and market share concentrated as users optimised purely for eligibility.

And the reversal was just as sharp.

Within weeks of the TGE, the dominance of Momentum unravelled. Its share of the total DEX volume of SUI collapsed from 86.3% to below 15%, and the liquidity that had accumulated over October completely vanished as the TVL fell 91% in a single month from $633.4mn to $56.2mn, sitting slightly above the $10mn threshold today.

What had appeared to be ecosystem-wide momentum was actually an incentive-driven episode. Highly reflexive capital was pulled forward by speculation and extracted just as quickly once rewards were realised.

While Momentum dominated headlines through speculative flows, quieter developments were unfolding beneath the surface, bringing changes with far more structural implications for the network’s long-term trajectory.

DeepBook quiet transformation

DeepBook (DEEP), originally a spot order book DEX, evolved into a shared margin infrastructure, effectively becoming a programmable financial layer for the SUI DeFi stack.

With the DeepBook Margin release, capital now earns passive yield from spot trading and active yield from margin demand simultaneously. The margin layer also provides the foundation for more complex products such as perpetuals, structured derivatives and new programmable financial primitives.

Instead of rebuilding borrowing, liquidation and leverage systems independently from scratch, protocols can now plug directly into the shared liquidity engine and built-in features of DeepBook.

DeepBook’s market share has steadily expanded. From May through December, it averaged roughly 12% of total DEX volume. Since the beginning of the year, that share has nearly doubled, reaching 20% and peaking at 41% of total traded volume on 30 Jan.

Since May 2025 alone, DeepBook has processed approximately $40bn in trading volume, gradually carving out space alongside BlueFin and Cetus, the two dominant DEX venues on SUI that together account for roughly 60% of total volume.

DeepBook’s rise has followed a strictly progressive trajectory. The February integration of the Ethena eSUI Dollar (suiUSDe) further reinforced this direction. By plugging directly into DeepBook Margin, it enabled structured yield strategies that combine spot liquidity provision with borrowing demand and trading activity.

The derivatives pivot sees perps overtake spot

The most consequential shift, however, is happening in derivatives.

Since November, perpetual DEX volume on SUI consistently exceeded spot DEX volume, marking a transition that fundamentally changes the network’s liquidity profile.

Perps are among the most competitive verticals in DeFi, and one protocol has emerged as dominant on the SUI network. That protocol is DipCoin.

(Source: DefiLlama)

Over the past three months, DipCoin accounted for 75% of all perpetual trading volume on the chain, representing $5.58bn out of a $7.45bn total. SUI printed one monthly all-time high after another in perpetuals activity, but this was largely driven by and concentrated in one venue.

DipCoin sits as the top revenue-generating protocol on SUI over the past couple of months, producing approximately $4.13mn in revenue, representing roughly 44% of the total network’s ecosystem revenue over the same period.

(Source: DefiLlama)

The latter proved resilient amid a market downturn, rising roughly 11% month-on-month in January, after a record $6.55mn in monthly revenue in November. This was achieved despite a broader market backdrop marked by thinning liquidity and pronounced risk-off positioning across digital assets.

But the fact that a significant share rests on a single protocol, DipCoin, raises familiar questions about sustainability and ecosystem depth. Revenue concentration can magnify growth during expansion phases, but it also exposes structural fragility if activity cools.

And once again, incentives are part of the story.

DipCoin recently launched its first incentive season, rewarding traders with points for future token allocations. As previously observed with Momentum, capital moved quickly to secure early positioning.

Liquidity comes fast but staying is harder

SUI’s strategic direction is becoming clearer. The network is leaning into financial infrastructure and capital efficiency and wants to build on that momentum. The recently announced $500,000 DeFi Moonshot programme offers early ecosystem incentives to seed teams, activate liquidity and accelerate a SUI DeFi environment that now supports meaningful trading volume and application-level revenue.

The programme's focus moves toward higher-conviction, architecture-level innovation, seeking protocols capable of defining new application categories.

Recent developments have driven a sharp expansion in SUI derivatives positioning, with open interest rising 53.1% since the start of the month from $256.2mn to $392.1mn, marking its highest level since October.

Yet one constraint remains unresolved. That is stickiness.

Incentive-driven liquidity across DeFi often proves ephemeral, acting as a mirage of growth that fades as soon as emissions or point programmes end. SUI’s recent cycles illustrate both the potency and the fragility of that model. Momentum’s TGE-driven spike in October and DipCoin’s incentive-fuelled derivatives expansion were preceded by the 2024 year-end surge around the Suilend lending protocol. As the network’s largest protocol by TVL, Suilend started it all with an aggressive 65% community token allocation structure that included 20% for airdrops and 15% for incentives.

Those programmes successfully attracted liquidity and engagement, reinforcing SUI’s ability to mobilise capital quickly when reward structures are compelling. But across these episodes, the underlying dynamic remains consistent. Incentives are powerful accelerants. Whether they translate into durable, self-sustaining demand once the distribution cycle matures is the more decisive question.