DeFi leverage has returned to 2021 levels: what lies behind this alarming signal?
The decentralized finance (DeFi) sector is experiencing a moment that cannot be ignored. The leverage ratio — a metric reflecting the proportion of borrowed capital to the total value locked (TVL) — has surged to levels not seen since 2021. It currently stands at 38%, and this is not the result of increased demand for loans, but an alarming symptom caused by a catastrophic reduction in the collateral base itself.
Why is the indicator rising amid panic?
The reason lies not in the growth of margin trading, but in the collapse of TVL. In the spring of 2025, the sector faced a series of large-scale hacks that triggered a massive exodus of capital. Investors, fearing for the safety of their funds, began withdrawing assets, leading to a sharp decline in the volume of locked collateral. As a result, with an unchanged (or even decreasing) volume of borrowed positions, the ratio of leverage to TVL rose sharply.
The most painful blows hit two major platforms:
- Kelp DAO — lost approximately $292 million due to an exploited vulnerability.
- Drift Protocol — also suffered a serious hacker attack.
These incidents served as a catalyst. According to estimates, TVL outflows from DeFi totaled around $13 billion in April alone. Traders did not become more active in taking out loans — the base on which the entire ecosystem rested simply shrank dramatically.
Risks remain high
Even after a partial stabilization of the market, the volume of margin positions has not decreased. This means the system retains heightened sensitivity to any price fluctuations. Any further decline in cryptocurrency prices could trigger a cascade of forced liquidations.
The current situation resembles a taut string. The sector has not yet recovered from the spring security crisis, and the high leverage ratio makes it extremely vulnerable. In 2021, similar levels preceded a major correction. History does not repeat itself, but it rhymes.
My expert opinion: The rise in leverage amid falling TVL is not a bullish signal, but a classic indicator of systemic stress. Investors should exercise extreme caution: the current market structure suggests that even a moderate price drop of 10-15% could trigger a chain reaction of liquidations. Diversification and storing funds in cold wallets now seem not like paranoia, but a necessity.