DeFi hacks have triggered a sharp surge in leverage to 2021 levels
The decentralized finance (DeFi) sector is experiencing a paradoxical moment. The on-chain leverage ratio, reflecting the proportion of borrowed capital to the value of locked assets, has surged to 38%. This brings us back to levels last seen in 2021. However, the reason for this growth is not an increase in demand for borrowed funds, but a rapid contraction in the overall collateral base.
Why has DeFi leverage returned to 2021 levels?
In the spring, the sector faced a series of large-scale hacker attacks that led to colossal losses. The most notable incidents were the hack of the Kelp DAO protocol, where damages amounted to approximately $292 million, and a serious exploit of the Drift Protocol project. As a result of these events, investors, fearing for the safety of their funds, began to massively withdraw capital.
The total value locked (TVL) sharply declined across many blockchain networks. According to estimates, the April exploits triggered a liquidity outflow of about $13 billion. It is this reduction in the collateral base, not an increase in lending, that has distorted the proportion and driven the leverage ratio upward.
Traders did not take out more loans—on the contrary, the overall asset base significantly decreased. Even after a local market stabilization, the volumes of margin positions did not decline. This creates an extremely unstable situation. The ecosystem retains heightened sensitivity to potential liquidations. Any further drop in cryptocurrency prices could trigger a chain reaction of forced position closures.
Expert opinion: The current dynamics are a worrying signal. The market has not yet recovered from the spring security crisis, and the high level of leverage against a shrunken asset base makes the sector vulnerable to cascading liquidations. Investors should exercise increased caution and reconsider their risk management strategies in DeFi.