You can avoid the pillow-shaded look while keeping the (intended?) diffuse frontal lighting look by being more careful with how deep the various shadows are. You're going full dark to full light on every "segment" of the tree, which makes it look flat. Reserve the darkest shadows for the deepest crevasses, and the lightest highlights for those parts of the tree that face the sky (such as the tops of the roots, but not the front of the vertical part of the trunk).
Also, consider if you really need all that texture. Surface texture obscures form, and the effect is even more pronounced in pixel art where the spatial and colour resolution are limited. Sometimes, a textureless surface on an interesting, well-defined form looks better than something with a detailed surface texture.