Leverage across the crypto economy is shifting in response to evolving market dynamics. According to Galaxy Research’s Q1 2025 report, total crypto-collateralized lending fell by 4.9% from the previous quarter to $39.07 billion, marking the first decrease since late 2023. Despite this decline in overall lending, the report indicates that underlying trends suggest a reconfiguration of leverage rather than its disappearance.
In decentralized finance (DeFi), lending dropped significantly early on, experiencing a decline of up to 21% before staging a strong rebound in April and May. Aave's recent integration of Pendle tokens, which offer yield-bearing structures and high loan-to-value ratios of up to 90%, played a crucial role in this resurgence. By the end of May, DeFi borrowing had increased over 30% from its lows, with Ethereum spearheading this recovery.
On the other hand, centralized finance (CeFi) lending rose by 9.24%, reaching $13.51 billion, supported primarily by firms such as Tether, Ledn, and Two Prime. Yet, the report mentions the opacity of centralized lending, suggesting that traditional reporting might only capture a fraction of the actual activity, with private desks and OTC platforms likely contributing to a total that could be 50% higher than reported.
Interestingly, businesses holding Bitcoin are becoming significant players in the leverage landscape. Companies like Strategy (MSTR) are issuing billions in convertible debt to finance Bitcoin purchases, contributing to an outstanding treasury debt of $12.7 billion, much of which is set to mature between 2027 and 2028. The increasing interest in derivatives, particularly in Ethereum futures traded on CME, reflects a growing institutional involvement.
Meanwhile, emerging exchanges like Hyperliquid are enhancing competition in the perpetual futures market, highlighting the ongoing importance of retail-driven leverage. The shift in leverage structures indicates an increasingly interconnected market, where disruptions in one area could have widespread implications across the crypto ecosystem. While leverage in crypto appears more fragmented than in the past, its impact remains significant.
In decentralized finance (DeFi), lending dropped significantly early on, experiencing a decline of up to 21% before staging a strong rebound in April and May. Aave's recent integration of Pendle tokens, which offer yield-bearing structures and high loan-to-value ratios of up to 90%, played a crucial role in this resurgence. By the end of May, DeFi borrowing had increased over 30% from its lows, with Ethereum spearheading this recovery.
On the other hand, centralized finance (CeFi) lending rose by 9.24%, reaching $13.51 billion, supported primarily by firms such as Tether, Ledn, and Two Prime. Yet, the report mentions the opacity of centralized lending, suggesting that traditional reporting might only capture a fraction of the actual activity, with private desks and OTC platforms likely contributing to a total that could be 50% higher than reported.
Interestingly, businesses holding Bitcoin are becoming significant players in the leverage landscape. Companies like Strategy (MSTR) are issuing billions in convertible debt to finance Bitcoin purchases, contributing to an outstanding treasury debt of $12.7 billion, much of which is set to mature between 2027 and 2028. The increasing interest in derivatives, particularly in Ethereum futures traded on CME, reflects a growing institutional involvement.
Meanwhile, emerging exchanges like Hyperliquid are enhancing competition in the perpetual futures market, highlighting the ongoing importance of retail-driven leverage. The shift in leverage structures indicates an increasingly interconnected market, where disruptions in one area could have widespread implications across the crypto ecosystem. While leverage in crypto appears more fragmented than in the past, its impact remains significant.
