Crypto news

In the decentralized finance (DeFi) sector, a sharp surge in the on-chain leverage ratio has been recorded. This indicator, reflecting the ratio of borrowed capital and margin positions to the total value locked (TVL), has returned to levels not seen since 2021. It currently stands at 38%, which is a direct consequence of a rapid reduction in collateral volume, rather than an increase in demand for borrowed funds.

Why did leverage rise instead of fall?

The key driver of this movement is not an increase in traders' credit activity, but a massive capital outflow. In the spring, the sector faced a series of devastating hacker attacks. Major protocols were hit hardest: Kelp DAO lost about $292 million, and Drift Protocol also suffered a serious exploit. As a result, investors, fearing for the safety of their funds, began to massively withdraw their assets.

According to my analysis, the April exploits triggered a TVL outflow of approximately $13 billion. This led to a sharp reduction in the overall base of collateral assets, while the volume of open margin positions remained virtually unchanged. Thus, the proportion changed not because traders took out more loans, but because the "pie" of collateral shrank.

A hidden threat to the market

Experts emphasize that even after the local stabilization of the market, the volume of margin positions has not decreased. This means the ecosystem retains heightened sensitivity to potential liquidations. The situation appears extremely unstable: the sector has still not fully recovered from the spring security crisis.

Expert comment: The rise in leverage amid a decline in TVL is a classic "red flag" for the market. We are observing not healthy demand for borrowed funds, but structural vulnerability. Any further drop in cryptocurrency prices could trigger a chain reaction of forced position closures, potentially leading to cascading liquidations. The market is currently balancing on the edge, and investors should exercise maximum caution.