DeFi hacks have triggered a return of leverage to 2021 highs.
The decentralized finance (DeFi) sector is experiencing a worrying signal: the leverage ratio has sharply risen, reaching levels last seen in 2021. The current figure has jumped to 38%, which is directly linked not to an increase in demand for borrowed funds, but to a dramatic reduction in total value locked (TVL).
The cause is panic, not greed
Unlike the bull market of 2021, today's leverage increase is driven not by trader euphoria, but by a series of devastating hacks. In the spring, the sector faced large-scale attacks that forced investors to withdraw capital in panic. The most notable incidents affected the Kelp DAO (losses of approximately $292 million) and Drift Protocol protocols. These hacks triggered an outflow of TVL of about $13 billion, according to industry analysts.
As a result, the ratio of margin positions to total collateral volume has sharply changed. Traders did not take out more loans — on the contrary, the base of assets serving as collateral has catastrophically shrunk. It is this mechanical change in proportions, rather than an increased appetite for risk, that has returned leverage to five-year highs.
Fragile equilibrium
The current situation is extremely unstable. Even after a partial market stabilization, the volume of margin positions has not decreased. This means the ecosystem retains heightened sensitivity to further price movements. Any serious drop in cryptocurrency prices could trigger a chain reaction of forced liquidations, exacerbating the sector's already vulnerable position.
My analysis: The market has found itself in a trap — the decline in TVL due to security issues has artificially inflated the leverage ratio. This is not a sign of healthy growth, but a symptom of fragility. Until trust in DeFi is restored, any negative news background could provoke a new wave of liquidations, comparable in scale to the crisis of 2021.