DeFi hacks have triggered a surge in leverage to 2021 highs
The decentralized finance (DeFi) sector is experiencing a paradoxical situation: the leverage ratio has sharply risen to levels seen in 2021. However, this increase is not driven by a rise in borrowing activity, but by a rapid contraction in the volume of locked assets — an alarming signal for the entire ecosystem.
The current on-chain ratio has reached 38%. This means that the volume of attracted capital and margin positions has grown relative to the total value of the collateral base. The reason is a mass exodus of funds following a series of devastating hacker attacks that hit protocols this spring.
Blow to Capitalization
The most significant losses were suffered by two major platforms. The Kelp DAO protocol lost about $292 million due to a discovered vulnerability, and the Drift Protocol project also underwent large-scale exploitation. These incidents sparked panic among investors, who began withdrawing capital for fear of the safety of their funds.
As a result, the aggregate Total Value Locked (TVL) indicator sharply declined. According to estimates, the outflow in April alone amounted to approximately $13 billion. Traders did not take out more loans — on the contrary, the overall asset base decreased significantly, which led to a distortion of the proportion towards an increase in leverage.
Fragile Equilibrium
Even after the local stabilization of the market, the volumes of margin positions have not decreased. This creates a dangerous situation: the ecosystem retains increased sensitivity to potential liquidations. Any further decline in cryptocurrency prices could trigger a chain reaction of forced position closures.
In my view, the current dynamics are not a sign of healthy growth, but a symptom of a deep crisis of confidence. The sector has still not fully recovered from the spring attacks, and the high level of borrowed funds against a reduced base makes the system extremely vulnerable. Investors should exercise maximum caution: under such conditions, even a minor market movement could trigger a cascade of liquidations comparable to the events of 2021.