A new Q1 2025 report from Galaxy Research reveals that while total crypto leverage fell modestly this quarter, underlying shifts in DeFi, CeFi, and treasury debt suggest growing structural complexity and systemic risk in the crypto economy.
Total Crypto Lending Declines, But Risk Remains
The report shows that total crypto-collateralized lending fell 4.9% quarter-over-quarter, reaching $39.07 billion — the first decline since late 2023. However, the decline masks a deeper transformation:
- DeFi lending dropped 21% early in Q1, only to rebound over 30% by May.
- The turnaround was driven by Pendle tokens on Aave, which offer yield-bearing assets with up to 90% LTV, making them capital-efficient for borrowers.
- Ethereum (ETH) led the DeFi recovery, reinforcing its central role in decentralized lending markets.
CeFi Lending Quietly Surges — but Remains Opaque
In contrast, centralized finance (CeFi) lending rose 9.24%, reaching $13.51 billion. This growth was spearheaded by platforms like Tether, Ledn, and Two Prime.
However, Galaxy warns that true CeFi leverage is likely much higher, as many OTC desks, private lenders, and offshore credit firms do not publicly disclose loan activity. The real figure may exceed current estimates by 50% or more.
Bitcoin Treasury Debt Introduces Long-Term Credit Risk
A growing source of structural leverage is emerging from BTC treasury companies like MicroStrategy (MSTR), which have issued over $12.7 billion in convertible debt to accumulate Bitcoin.
- Most of this debt is set to mature between 2027 and 2028
- These instruments add long-dated credit risk to Bitcoin’s market structure
- This creates a potential stress point during future downturns or liquidity squeezes
Institutional Futures and Perps Reflect Diverging Demand
Leverage in derivatives is also evolving:
- CME open interest in ETH futures continues to climb, indicating growing institutional participation
- Meanwhile, retail traders are fueling growth on exchanges like Hyperliquid, which is capturing a larger slice of the perpetual futures market
A Fragmented, Interdependent Risk Landscape
Galaxy’s report concludes that while leverage may be more fragmented across instruments and platforms, it’s far from diminished. In fact, the increasing interdependence between DeFi, CeFi, treasury debt, and derivatives makes the ecosystem more sensitive to localized shocks.
“Leverage, in crypto’s current cycle, may be more fragmented than before — but it’s no less potent,” the report warns.
