Leverage in the crypto economy declined modestly in Q1, but structural shifts in decentralized finance (DeFi), centralized finance (CeFi), and corporate treasury strategies suggest that risk is far from receding — it’s simply evolving.
According to Galaxy Research’s Q1 2025 report, total crypto-collateralized lending fell by 4.9% quarter-over-quarter to $39.07 billion. This marks the first contraction since late 2023. However, despite the dip in aggregate numbers, the report highlights a dynamic reallocation of leverage rather than a broad deleveraging.
DeFi: A Volatile Dip, Then a Rapid Rebound
DeFi lending endured a sharp drop early in the quarter, declining by as much as 21%. But a swift recovery followed in April and May, fueled primarily by Aave’s integration of Pendle tokens. These tokens, with their yield-bearing properties and generous loan-to-value (LTV) ratios — up to 90% — ignited a fresh wave of borrowing. By late May, DeFi lending had bounced over 30% from its Q1 lows, with Ethereum leading the rally.
CeFi: Quiet Expansion Amid Low Transparency
Centralized lending platforms saw steady growth, with CeFi loan volumes rising 9.24% to $13.51 billion. Tether, Ledn, and Two Prime were among the primary contributors. However, Galaxy cautions that limited public disclosures mask the true size of CeFi leverage. Private lending desks, OTC desks, and offshore credit venues likely drive actual exposure significantly higher — potentially by 50% or more than reported.
Treasuries: Corporate Bitcoin Bets Fuel New Risk Vectors
Corporate treasuries continue to emerge as a leverage hotspot. Firms such as MicroStrategy (MSTR) have raised billions through convertible debt to finance aggressive Bitcoin purchases. As of May, treasury-held debt tied to BTC accumulation totaled $12.7 billion, much of it maturing between 2027 and 2028 — a potential risk concentration in future debt cycles.
Derivatives: Institutions Rise, Retail Remains Strong
CME’s rising open interest in Ether futures points to deepening institutional involvement, while newer platforms like Hyperliquid are capturing meaningful share in the perpetuals market — a signal that retail-driven leverage remains robust.
Conclusion: Risk Is Shifting, Not Shrinking
Galaxy’s report paints a picture of a crypto leverage landscape that’s becoming more fragmented but also more interdependent. The growing integration between DeFi, CeFi, corporate finance, and derivatives increases the risk of contagion — where stress in one part of the system could quickly spill into others. Leverage may be less concentrated, but its systemic potential remains as powerful as ever.
