Leverage across the crypto economy develops and does not evaporate.
The total cryptocollateralized loan fell 4.9% quarter over the quarter to $ 39.07 billion, the first decline since the end of 2023, the Galaxy Research’s Q1 2025 report shows. But while the headline, contracted, suggests underlying dynamics that leverage changes shape and does not fade.
Lending in decentralized financing (DEFI) Lending got a hit early in the quarter and slipped as much as 21%before rebuilding sharply in April and May. Turnaround was largely driven by Aave’s integration of the commute-tokens, whose dividend-bearing structure and high loan-to-value conditions (up to 90%) triggered a wave of fresh borrowing. By the end of May, Defi Loaning had risen more than 30% discount on the lows where Ethereum led the recovery.
Centralized funding (CEFI) lending rose 9.24% to $ 13.51 billion, led by Tether, LEDN and two prime. Still, Galaxy notes that a narrow set of public information limits visibility to the true extent of centralized lending. Private desks, OTC platforms and offshore credit providers probably push the actual total much higher. Maybe by 50% or more.
Meanwhile Bitcoin
Treasury companies are quietly becoming a new systemic gearing node. Companies such as Strategy (MSTR) have issued billions in convertible debt for financing BTC purchases. From May, the total outstanding debt across government bonds was $ 12.7 billion, much of it mature between 2027 and 2028.
In derivatives, CME’s increasing open interest especially in ether
Futures signals that accelerate institutional participation. At the same time, Upstart Exchange Hyperliquid has cut a growing proportion of the market for eternal futures, which emphasizes the continued strength of retail -driven leverage.
The report points to an increasingly interconnected market structure, one where stress in a single place or instrument can be quickly restored over the ecosystem. Leverage in Crypto’s current cycle may be more fragmented than before – but it is no less potent.
