Leverage in DeFi has surged to 2021 levels: an alarming signal amid hacker attacks
The decentralized finance (DeFi) sector is experiencing a sharp surge in the on-chain leverage ratio, which has returned to levels not seen since 2021. This is a worrying indicator, traditionally signaling an increase in systemic risks.
My analysis of the data shows that the current dynamics are driven not by growing demand for borrowed funds, but by a specific factor — a rapid decline in the total value locked (TVL). The ratio, reflecting the proportion of borrowed capital and margin positions to the total value of collateral, has risen to 38%.
Why has DeFi leverage returned to 2021 levels?
The drop in TVL began in the spring, when the sector faced a series of large-scale hacker attacks. Attackers withdrew colossal sums from various protocols. The greatest damage was suffered by two major platforms:
- The Kelp DAO protocol lost approximately $292 million due to an exploited vulnerability.
- The Drift Protocol project also suffered a serious attack.
Following these incidents, investors began to massively withdraw capital, fearing for the safety of their funds. The total value of collateral dropped sharply across many blockchain networks.
"Exploits in DeFi in April triggered an outflow of TVL of approximately $13 billion," notes reports from industry analysts.
The change in proportions occurred precisely because of the decline in the volume of collateral assets. Traders did not take out more loans — the overall asset base shrank significantly. Even after the local market stabilization, the volume of margin positions did not decrease. Thus, the ecosystem retains heightened sensitivity to potential liquidations. Any further decline in cryptocurrency prices could trigger a chain reaction of forced position closures. The situation appears unstable, as the sector has not yet fully recovered from the spring security crisis.
My expert opinion: The rise in leverage against a backdrop of falling TVL is a classic "bearish" signal. The market has become more fragile, and even a small price movement could trigger a cascade of liquidations. Investors should exercise extreme caution and reconsider their risk management strategies in DeFi.