Crypto Leverage Transformation: Insights from Galaxy’s Q1 2025 Report
A fresh report from Galaxy Research indicates that while crypto leverage has overall decreased, evolving trends in DeFi (decentralized finance) and CeFi (centralized finance) are signaling a significant shift in market dynamics that comes with its own set of risks.
Key Highlights:
- DeFi borrowing witnessed a remarkable growth of over 30% since May following an initial downturn in the first quarter.
- This boost was primarily fueled by efficient capital assets, including Pendle integrated into Aave.
- Currently, firms holding Bitcoin treasury have accrued over $12.7 billion in debt-backed cryptocurrency, introducing long-term credit risks into the market.
The report elaborates on the changing landscape of leverage in the crypto sphere, highlighting that it is shifting rather than disappearing. Total crypto-collateralized lending has declined by 4.9%, settling at $39.07 billion — marking the first decrease since late 2023. Despite this general contraction, the underlying mechanics suggest that leverage is rearranging its fundamental structure.
Insights into Lending Trends:
DeFi lending saw a sharp decrease of up to 21% at the start of the quarter but rebounded significantly in April and May, driven by Aave’s new integration. As of late May, there was a notable recovery in borrowing, led by Ethereum.
On the other hand, CeFi lending rose by 9.24%, reaching $13.51 billion, predominantly led by firms like Tether, Ledn, and Two Prime. The report notes, however, that limited public disclosures may not reflect the complete picture, as private desks and offshore credit providers may contribute to even higher actual lending totals.
Moreover, companies managing Bitcoin treasury are becoming a new center for systemic leverage, with entities like MicroStrategy issuing convertible debt to fund Bitcoin acquisitions. As of May, the total debt in these treasury firms was noted to be around $12.7 billion, set to mature between 2027 and 2028.
When looking at derivatives, rising open interest in CME for ether futures signals increasing institutional engagement, while emerging exchanges like Hyperliquid are gaining market share in perpetual futures, showing robust retail-driven leverage.
This report underscores a growing interconnectedness in the market landscape, implying that stresses in one area could quickly impact the overall ecosystem, where the fragmented leverage present today is still notably impactful.
