A slight pullback in total crypto leverage during Q1 masks a more important development: risk isn’t retreating — it’s being redistributed. Galaxy Research’s Q1 2025 report paints a picture of a maturing but increasingly complex leverage environment, where DeFi rebounds, CeFi expands in opacity, and corporate treasuries quietly become leverage engines.
Total crypto-backed borrowing declined 4.9% quarter-over-quarter to $39.07 billion — the first decline in over a year. But this headline figure obscures what’s actually happening beneath: leverage isn’t disappearing, it’s adapting.
DeFi: Volatile But Resurgent
DeFi lending volumes plunged more than 21% early in the quarter, only to bounce back by over 30% in the following months. Aave’s integration of Pendle’s yield-generating tokens catalyzed the turnaround. With LTV ratios reaching up to 90%, these instruments injected fresh borrowing activity — especially on Ethereum — highlighting how new token primitives can rapidly shift leverage flows.
CeFi: Quiet Climb, Murky Depths
While not grabbing headlines, centralized lenders posted a 9.24% increase in outstanding loans, reaching $13.51 billion. Entities like Tether, Ledn, and Two Prime played key roles — but Galaxy warns that this figure may vastly underrepresent the true scale of CeFi risk. Private OTC desks and offshore operations continue to thrive beyond public view, suggesting a deeper and less regulated layer of leverage.
Corporate Treasuries: Bitcoin as a Leveraged Asset
MicroStrategy and others have fueled a new form of crypto leverage by issuing convertible debt to finance Bitcoin purchases. As of May, $12.7 billion in debt sits on corporate treasuries with direct exposure to BTC — much of it maturing within three years. This raises concerns not only for crypto markets, but also for traditional credit cycles.
Derivatives: Parallel Momentum
Institutions are increasingly active, as shown by rising CME open interest in ETH futures. At the same time, retail traders are flocking to decentralized perpetual platforms like Hyperliquid. Leverage is alive and well — it’s just being expressed through different instruments and venues.
Conclusion: The Shape of Risk Has Changed
Galaxy’s data underscores a critical reality: leverage is no longer concentrated in one corner of the crypto ecosystem. It’s been repackaged across DeFi protocols, centralized lenders, and even the corporate debt markets. The risk isn’t gone — it’s just harder to track, more distributed, and potentially more systemic.
