Onchain Credit and Crypto Lending Trends
In this report:
The Emergence of On-Chain Prime Infrastructure
Institutional Capital Embeds in On-Chain Credit
Crypto Credit Continues to Expand Its Place in Traditional Capital Markets
Governance Transitions at Aave with Key Contributor Departures
Q1 Crypto Lending Markets
January opened on a constructive footing, with BTC trading in the low-$90k range and ETH above $3k amid improving macro risk appetite. Volatility drifted lower early in the month, term structure remained in contango, and carry strategies were still attractive. As January progressed, however, upside momentum faded. Liquidity thinned, positioning turned more defensive, and basis compressed steadily — signaling a more cautious undertone beneath relatively stable spot levels.
From a lending perspective, DeFi activity remained resilient through January. Aave’s TVL averaged approximately $57 billion, reflecting sustained capital deployment despite softening price momentum, while cumulative lending volumes continued to build toward the $1 trillion milestone reached in February.
February marked a decisive regime shift. A cross-asset risk-off move triggered rapid deleveraging across crypto markets, with BTC breaking key support and briefly trading below $60k at peak stress. ETH retraced toward the $1.7k–$2k range, and higher-beta alts underperformed. The drawdown was driven by liquidation-heavy flows, a sharp spike in front-end volatility, and visible compression on term basis, with perp funding turning negative during the height of the unwind.
Into month-end, markets transitioned into a stabilization phase. BTC consolidated in the mid-$60k to low-$70k range, volatility cooled from extremes, and funding dynamics began to normalize. In early March, markets saw renewed macro volatility via geopolitical escalation in the Middle East, briefly pressuring BTC toward the low-$60k area before a swift rebound. Compared to February’s forced unwind, the move was absorbed more orderly, suggesting positioning had reset and leverage was materially cleaner heading into March.
Key trends
001
The Emergence of On-Chain Prime Infrastructure
A clear market shift is underway: digital asset lending and prime brokerage are evolving toward institutional-grade standards as more institutions look to tap on-chain liquidity. Existing DeFi lending markets are effective but can be capital-intensive and fragmented, requiring high over-collateralization and limiting capital efficiency for larger borrowers. In response, new institutional-focused models are emerging that combine on-chain liquidity with structured risk management. The on-chain prime framework - most recently seen through Spark Prime’s collaboration with Arkis - introduces portfolio margining across DeFi protocols, centralized venues, and qualified custodians, enabling net risk assessment across positions and more efficient use of diversified collateral. The result may be improved borrowing capacity, tighter pricing, and infrastructure better aligned with institutional mandates.
Galaxy’s on-chain prime offering aims to reflect this evolution as well, providing borrowers exposure to on-chain rates within defined risk parameters and approved markets, accessible through a unified prime interface spanning trading, custody, and DeFi. Institutional adoption will be driven not by yield alone, but by frameworks that combine capital efficiency with proactive risk management, audited protocols, multi-custody security, and reduced reliance on auto-liquidation - setting the foundation for sustained institutional deployment into on-chain credit markets.
002
Institutional Capital Embeds in On-Chain Credit
Building on the growing institutional allocation to on-chain credit markets, a related shift is taking shape: deeper, more strategic partnerships between traditional asset managers and DeFi protocols. Rather than simply accessing yield, large asset managers are increasingly embedding themselves directly into decentralized lending infrastructure. Apollo Global Management’s cooperation agreement with Morpho is a clear example.[1] The firm has committed to purchasing up to 90 million MORPHO governance tokens over four years while supporting the development of Morpho’s on-chain lending markets - aligning a major private credit manager with decentralized credit rails at both capital and governance levels.
This follows Apollo’s earlier digital asset initiatives, including its partnership with Coinbase Asset Management to develop stablecoin-based credit strategies and its investment in Plume to advance RWA tokenization. The momentum mirrors BlackRock’s engagement with the Uniswap ecosystem and broader push into tokenized funds, reinforcing a consistent signal: leading asset managers are moving beyond passive experimentation toward structural participation. Together, these developments underscore growing institutional conviction that on-chain lending is becoming a meaningful extension of institutional capital markets.
[1] Galaxy Digital UK Limited served as the exclusive financial adviser to Morpho in its cooperation agreement with Apollo Global Management, and Galaxy, along with its affiliates, may maintain an active economic interest in the protocol and its related digital assets as an institutional user and token holder.
003
Crypto Credit Continues to Expand Its Place in Traditional Capital Markets
In Russia, corporate demand to borrow against digital assets has picked up, leading Sberbank - the country’s largest lender - to prepare a crypto-collateralized loan offering. Sovkombank has already been active in the space, extending loans secured by digital assets. Even within a tightly regulated environment, banks are responding to client demand for liquidity against crypto holdings.
This comes as Russia’s regulator works toward finalizing a formal legislative framework for digital assets by July 1, 2026. The proposed regime centers on licensing, allowing existing exchanges and brokers to offer crypto services under strict oversight while penalizing unlicensed intermediaries. Importantly, the domestic ban on using crypto for payments will remain in place - underscoring that policymakers are drawing a distinction between speculative payments use cases and regulated financial activity such as lending.
Globally, this mirrors steps taken by major banks including JPMorgan and Wells Fargo, which have expanded crypto-backed financing offerings for wealth and institutional clients. Increasingly, digital assets are being treated as eligible collateral within traditional credit frameworks.
The continued maturation of crypto-backed credit is also being witnessed at the capital markets level. In February, crypto lending platform Ledn closed a $188m ABS issuance backed by a pool of BTC-collateralized retail loans. S&P assigned a BBB- to the senior notes - the first time a major global credit rating agency has issued an IG rating tied to a digital asset lending portfolio. The transaction signals that crypto credit is moving away from a niche product toward broader institutional acceptance.
004
Governance Transitions at Aave with Key Contributor Departures
In recent weeks, Aave has seen shifts among its major service providers. BGD Labs, the primary technical team behind Aave V3's development and maintenance, announced in late February 2026 that it would not renew its contract with the Aave DAO, ending contributions after April 1, 2026. The decision stemmed from strategic differences, including focus on Aave V4 and organizational influence concerns.
On March 3, 2026, the Aave Chan Initiative (ACI)—a key governance and growth contributor that handled a large share of proposals, incentives, and GHO initiatives—stated it would not renew its mandate and wind down over four months (targeting July 2026). ACI highlighted governance process challenges, particularly around transparency and a major funding proposal from Aave Labs.
These changes align with discussions on the "Aave Will Win" proposal from Aave Labs, which requests significant funding (roughly $42–51 million plus tokens over two years) while committing to route all Aave-branded product revenue to the DAO. It passed an initial Temp Check vote narrowly (around 52.58%), sparking community debate on governance dynamics.
Aave continues as a leading DeFi lending protocol with robust TVL and assured operational stability during transitions. The DAO functions normally, incentives remain active, and Aave Labs has committed to supporting handovers. These events reflect ongoing evolution in decentralized governance and contributor roles in large protocols.
Notable News:
Kraken, First Crypto Firm to Win Access to Fed’s Core Payments System
Jamie Dimon says stablecoin yields should face bank-style rules
Ethereum Foundation to stake ~70k ETH from treasury to generate yield
Wall Street giant Apollo deepens crypto push with Morpho token deal
Coinbase Crypto-Backed Loans, Record Liquidations Amid BTC, ETH Plunge
This document, and the information contained herein, has been provided to you by Galaxy Digital Holdings LP and its affiliates (“Galaxy”) solely for informational purposes. Galaxy provides comprehensive financial products and services to institutions, corporates, and qualified individuals (typically Eligible Contract Participants and accredited investors) within the digital asset ecosystem. This document may not be reproduced or redistributed in whole or in part, in any format, without the express written approval of Galaxy. Neither the information, nor any opinion contained in this document, constitutes an offer to buy or sell, or a solicitation of an offer to buy or sell, any advisory services, securities, futures, options or other financial instruments or to participate in any advisory services or trading strategy. Nothing contained in this document constitutes investment, legal or tax advice. You should make your own investigations and evaluations of the information herein. Any decisions based on information contained in this document are the sole responsibility of the reader. Certain statements in this document reflect Galaxy’s views, estimates, opinions or predictions (which may be based on proprietary models and assumptions, including, in particular, Galaxy’s views on the current and future market for certain digital assets), and there is no guarantee that these views, estimates, opinions or predictions are currently accurate or that they will be ultimately realized. To the extent these assumptions or models are not correct or circumstances change, the actual performance may vary substantially from, and be less than, the estimates included herein. None of Galaxy nor any of its affiliates, shareholders, partners, members, directors, officers, management, employees or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the information or any other information (whether communicated in written or oral form) transmitted or made available to you. Each of the aforementioned parties expressly disclaims any and all liability relating to or resulting from the use of this information. Certain information contained herein (including financial information) has been obtained from published and non-published sources. Such information has not been independently verified by Galaxy and Galaxy does not assume responsibility for the accuracy of such information. Affiliates of Galaxy’s own investments in some of the digital assets and protocols discussed in this document. Except where otherwise indicated, the information in this document is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof. The foregoing does not constitute a “research report” as defined by FINRA Rule 2241 or a “debt research report” as defined by FINRA Rule 2242 and was not prepared by GalaxyDigital Partners LLC. Similarly, the forgoing does not constitute a “research report”, as defined under CFTC Regulation 23.605(a)(9), and may only be considered a solicitation for entering into a derivatives transaction for purposes of CFTC Regulation 23.605. It is not intended to constitute a solicitation for any other purposes under CFTC or NFA rules, and it should not be relied on as a form of recommendation to trade under CFTC regulations. Any statement, express or implied, contained within these materials is subject, in all cases, to the actual terms of an agreement entered into with Galaxy Digital on a principal basis. The Information is being provided solely for informational purposes about Galaxy Digital and may not be used or relied on for any purpose (including, without limitation, as legal, tax or investment advice) without the express written approval of Galaxy Digital. The Information is not an offer to buy or sell, nor is it a solicitation of an offer to buy or sell, any investment banking services, securities, futures, options, commodities or other financial instruments or to participate in any investment banking services or trading strategy. Any decision to make an investment or enter into a transaction should be made after conducting such investigations as the investor deems necessary and consulting the investor’s own investment, legal, accounting and tax advisors in order to make an independent determination of the suitability and consequences of an investment. Additional information about the Company and its products and services can be found at Galaxy Digital’s website at galaxy.com. For all inquiries, please email [email protected]. ©Copyright Galaxy Digital Holdings LP 2026. All rights reserved.