Galaxy Research’s Q1 2025 report reveals a nuanced picture of crypto leverage: while total on-chain borrowing declined slightly, underlying structural changes suggest leverage is evolving rather than disappearing.

Aggregate crypto-collateralized lending slipped 4.9% quarter-over-quarter to $39.07 billion — the first drop since late 2023. But rather than a broad deleveraging, the data points to a redistribution of risk across DeFi, CeFi, and corporate balance sheets.

DeFi: From Contraction to Comeback
Decentralized lending saw a rocky start to the year, with volumes plunging over 21% in early Q1. The downturn was short-lived. A resurgence in April and May — led by Aave’s adoption of Pendle’s yield-bearing tokens — drove a sharp recovery. With some assets offering LTVs up to 90%, DeFi lending surged more than 30% from its trough, with Ethereum at the core of the rebound.

CeFi: Subdued Growth, Hidden Exposure
Centralized finance platforms registered a quieter, but consistent, expansion. CeFi loan volumes rose 9.24% to $13.51 billion, buoyed by activity from firms like Tether, Ledn, and Two Prime. However, the opacity of CeFi operations continues to mask the full extent of risk. Galaxy notes that actual exposure — factoring in private and offshore lending — may be significantly higher than reported.

Treasury Debt: Leveraged BTC Plays Raise Flags
Corporate treasuries have become another key pillar of crypto leverage. Companies like MicroStrategy have issued billions in convertible debt to fund large-scale Bitcoin accumulation. Total treasury-related Bitcoin debt now sits at $12.7 billion, with much of it maturing in 2027–2028 — a growing concentration of risk tied to future refinancing cycles.

Derivatives: Institutions and Retail Both Lean In
Institutional participation is ramping up, as evidenced by CME’s rising Ether futures open interest. Meanwhile, decentralized derivatives platforms such as Hyperliquid are attracting retail traders, reinforcing that speculative leverage remains vibrant at both ends of the market.

Takeaway: Leverage Is Being Reengineered
The report underscores a critical theme: crypto’s leverage isn’t vanishing — it’s migrating. As DeFi regains momentum, CeFi expands discreetly, and corporate treasuries embrace crypto-backed debt, systemic risk may be spreading into new, less transparent corners of the market. The challenge ahead lies in tracking this risk before it consolidates into the next point of failure.