The DeFi leverage ratio has plummeted to 2021 lows after a series of hacks.
The decentralized finance (DeFi) sector is experiencing a sharp shift in risk structure. The leverage ratio — an indicator reflecting the ratio of borrowed capital and margin positions to the total value locked (TVL) — has surged to 38%. This is a level last seen in 2021. However, this increase is not due to rising demand for borrowed funds, but rather a rapid contraction in the volume of collateral.
Analysts attribute this paradox to a wave of large-scale hacker attacks that swept through the ecosystem in the spring. Attackers caused massive damage: the Kelp DAO protocol lost approximately $292 million due to a critical vulnerability, and the Drift Protocol project also suffered serious exploitation. These incidents triggered panic among users, who began massively withdrawing their funds out of fear for their safety.
As a result, the total value of locked collateral sharply declined. Estimates suggest the TVL outflow amounted to around $13 billion. Traders did not increase lending volumes — on the contrary, the asset base significantly shrank, leading to distorted proportions. The leverage grew not from greed, but from capital flight.
The market is teetering on the edge
Even after local stabilization, margin position volumes have not decreased. This means the system retains heightened sensitivity to potential liquidations. Any further decline in cryptocurrency prices could trigger a chain reaction of forced position closures. The ecosystem currently looks extremely unstable — it has not yet fully recovered from the spring security crisis.
My analysis: The rise in leverage amid falling TVL is a classic "red flag" for the market. It indicates that remaining participants are excessively leveraged, and liquidity is drying up. If we see another supply shock or major hack, the consequences could be catastrophic for the entire DeFi sector.