DeFi leverage has surged to 2021 levels: what is driving this growth
The decentralized finance (DeFi) sector is experiencing a paradoxical moment: the leverage ratio has surged sharply, reaching levels last seen in 2021. However, unlike the previous bull cycle, the current spike is driven not by rising demand for borrowed funds, but by an alarming contraction in total value locked (TVL).
Analysis of on-chain data shows that the ratio, reflecting the proportion of borrowed capital and margin positions to the total value of locked assets, has risen to 38%. This is a signal that traditionally indicates growing systemic risks. But let's examine the root causes.
This spring was marked by a series of large-scale hacks that severely undermined trust in protocols. Attackers withdrew colossal sums from several projects. The most notable incidents include:
- Kelp DAO: Losses amounted to approximately $292 million due to a critical vulnerability.
- Drift Protocol: The project also suffered serious exploitation.
These events triggered panic among users. Investors, fearing for the safety of their funds, began to withdraw capital en masse. As a result, the total value locked (TVL) dropped sharply across many blockchain networks. Estimates suggest that in April alone, TVL outflows totaled around $13 billion.
Shrinking asset base, not rising lending
The key takeaway is that traders did not take on more loans. On the contrary, the overall asset base serving as collateral has significantly contracted. This mechanically increased the share of borrowed funds in the total. The situation remains extremely unstable. Even after some market stabilization, the volume of margin positions has not decreased, making the ecosystem highly sensitive to potential liquidations.
Expert comment: Rising leverage amid falling TVL is a "red flag" for the market. We are witnessing not healthy demand for capital, but rather a "domino effect" from lost trust. Any further decline in prices could trigger a cascade of forced position closures, as the sector has yet to fully recover from the spring security crisis. The market is in a fragile equilibrium, and even a minor negative event could act as a trigger for a new wave of volatility.