The State of Crypto Leverage – Q1 2025

Introduction

At the end of Q1 2025, Galaxy Research published a comprehensive report on the state of crypto lending, analyzing the turbulent history and recent trends in crypto-collateralized lending through both centralized (CeFi) and decentralized finance (DeFi) venues. While the report offered a rare glimpse into this sector of the crypto economy, it did not provide a comprehensive picture of the amount of leverage built up in the system. Crypto-collateralized borrowing was a widely used source of leverage in the 2020-2021 bull cycle and ultimately proved to be the weak link that snapped and sent the market tumbling. Since then, however, new sources of leverage have arisen (e.g., bitcoin treasury companies), and other commonly used sources of leverage, such as futures contracts, have seen substantial growth over the highs reached in the previous cycle.

This write-up offers a more comprehensive view of the leverage that has accumulated in the crypto economy. It covers similar ground as our last report, with additional CeFi and DeFi venues included in the tally of crypto-collateralized lending. But it widens the lens on leverage to include bitcoin treasury companies and futures markets.

Key Takeaways

• The crypto-collateralized lending sector saw a slight decline during the first quarter, sliding 4.88% to $39.07 billion in open borrows. CeFi lending venues added $1.14 billion (+9.24%) in borrows, DeFi lending applications experienced a decline of $4.7 billion (-21.14%) in open borrows, and the crypto-collateralized portion of prominent collateral debt position (CDP) stablecoins increased $1.6 billion (+25.56%).

• Onchain stablecoin borrow rates declined from 11.59% on January 1 to 5% as of May 26, using the seven-day moving average of the weighted average of stablecoin borrow rates and CDP stablecoin mint fees. The 56.86% decline since the start of the first quarter can be attributed to declines or stagnation in lending market utilization as asset prices struggled and onchain activity declined. Updates to interest rate parameters on lending applications also contributed to the decline in borrow rates.

• Publicly traded bitcoin treasury companies added $2.1 billion of debt to purchase BTC between January 1 and May 27. Semler Scientific issued $100 million on January 24 with a minimum maturity date in August 2030. Strategy (formerly MicroStrategy) issued an additional $2 billion of debt to feed its bitcoin treasury on February 20, with a minimum maturity date in March 2030. Strategy carried $8.214 billion worth of debt solely used to finance its bitcoin treasury strategy as of May 27, 2025.

• Futures open interest across all the major venues stood at $115.97 billion as of May 24. This represents an increase of $886.6 million (+0.77%) from the amount of open interest on January 1. Over the same period, bitcoin futures open interest decreased $1.66 billion (-2.66%), Ethereum futures open interest increased $2.18 billion (+7.95%), Solana futures open interest increased $758.3 million (+17.74%), and the futures open interest of all other crypto assets decreased $397.33 million (-1.89%).

• Hyperliquid, a popular venue for trading perpetual futures, enjoyed the largest relative and absolute growth in open interest of all the perps venues since the beginning of the year. The exchange expanded its open interest $5.73 billion (+175.33%) between January 1 and May 24, and with a 10.73% market share for perps open interest, it’s now in fourth place and gaining fast on perps market leader Binance.

Crypto-Collateralized Lending

Crypto-collateralized lending remains one of the primary channels of accessing leverage in the crypto economy. At its bull-market peak in Q4 2021, Galaxy Research estimates the crypto-collateralized lending market carried $64.85 billion of open borrows across CeFi, DeFi lending applications (e.g., Aave, Compound, or Kamino), and the crypto-collateralized portions of prominent CDP stablecoins.

Market Overview

The market map below highlights some of the major past and present players in the CeFi and DeFi crypto lending markets. Some of the largest CeFi lenders by loan book size crumbled in 2022 and 2023 as crypto asset prices tanked and liquidity dried up. These lenders are flagged with red caution dots in the map below. Since Galaxy’s original crypto lending report, we have added 11 DeFi lenders and two CeFi lenders to our analysis.

The additional DeFi apps are:

• Euler v1 on Ethereum

• Euler v2 on Avalanche, Base, Berachain, BOB, BSC, Ethereum, Sonic, Swellchain, and Unichain.

• Fluid on Arbitrum, Base, Ethereum, and Polygon.

• Dolomite on Arbitrum, Berachain, Mantle, and Polygon zkEVM.

• Aries on Aptos.

• Echelon on Aptos.

• Echo on Aptos.

• Yei on Sei.

• Suilend on Sui.

• Navi on Sui.

• Save on Solana.

• Kamino on Solana.

The newly added CeFi lenders are:

• Sygnum

• Two Prime

CeFi

The table below compares the CeFi crypto lenders in our market analysis. Some of the companies offer multiple services to investors. Coinbase, for example, primarily operates as an exchange but also extends credit to investors through over-the-counter cryptocurrency loans and margin financing. The analysis shows only the size of their crypto-collateralized loan books, however.

As of March 31, Galaxy Research tracked $13.51 billion of open CeFi borrows. This represents quarter-over-quarter (QoQ) growth of 9.24%, or $1.14 billion, and $6.9 billion (+103.25%) growth since the bear market trough of $6.65 billion in Q4 2023.

Tether, Ledn, and Two Prime are the top three lenders Galaxy Research tracks by outstanding loan values. As of March 31, Tether maintained $8.825 billion of open loans, Ledn $932.5 million, and Two Prime $884 million.

Tether is the dominant lender in our analysis, commanding a 65.34% share of the CeFi lending market. Add in Ledn (6.9% market share) and Two Prime (6.54% share), and the top three tracked CeFi lenders control 78.79% of the market.

When comparing market shares, it’s important to note the distinctions between CeFi lenders. Some lenders only offer certain types of loans (e.g., BTC-collateralized only, altcoin-collateralized products, and cash loans that do not include stablecoins), only service certain types of clients (e.g., institutional vs. retail), and only operate in certain jurisdictions. The combination of these factors allows some lenders to scale more easily than others.

The table below details the sources of Galaxy Research’s data about each CeFi lender and the logic we used to calculate the size of their books. While DeFi and onchain CeFi lending figures are retrievable from onchain data, which is transparent and easily accessible, retrieving CeFi data is tricky. This is due to inconsistencies in how CeFi lenders account for their outstanding loans and how often they make the information public, as well as the general difficulty of obtaining this information.

CeFi and DeFi Lending

The dollar-denominated value of outstanding loans on DeFi applications experienced its first quarterly decline since Q3 2023, and its first decline of more than 1% since Q4 2022. Borrows through DeFi lending apps contracted $4.75 billion (-21.14%) QoQ in Q1 2025, to $17.7 billion. Combining DeFi apps with CeFi lending venues, there were $31.21 billion of outstanding crypto-collateralized borrows at quarter-end. This represents a contraction of $3.6 billion (-10.35%) QoQ, driven entirely by the decline in open borrows across DeFi lending apps.

Note: There is potential for double-counting between total CeFi loan book size and DeFi borrows. This is because some CeFi entities rely on DeFi applications to lend to offchain clients. For example, a hypothetical CeFi lender may pledge its idle BTC to borrow USDC onchain, then lend that USDC to a borrower offchain. In this scenario, the CeFi lender’s onchain borrow will be present in the DeFi open borrows and in the lender’s financial statements as an outstanding loan to its client. The lack of disclosures or onchain attribution makes filtering for this dynamic difficult.

As a result of the quarter-over-quarter decline in outstanding borrows on DeFi lending applications, their lead over CeFi lending venues narrowed for the first time since Q4 2022. At the end of Q1 2025, DeFi lending app dominance over CeFi lending venues stood at 56.72%, down from 64.48% at the end of Q4 2024 and about flat from Q1 2024 when the share was 55.31%.

The third leg of the stool, the crypto-collateralized portions of CDP stablecoin supply, increased by $1.6 billion (+25.56%) QoQ. Again, there is potential for double-counting between total CeFi loan book size and CDP stablecoin supply, because some CeFi entities might rely on minting CDP stablecoins with crypto collateral to fund loans to offchain clients.

All told, crypto-collateralized lending contracted by $2.03 billion (-4.88%) in Q1 2025 to $39.07 billion. This was the first QoQ decline in the cumulative crypto-collateralized lending market since Q3 2023, even though DeFi lending applications were the only channel that experienced a decline. The market is down 39.76% from the all-time high but up 170.63% from the bear market trough in Q3 2023.

At the end of Q1 2025, DeFi lending applications represented 45.31% of the crypto collateralized lending market, CeFi venues captured 34.57% of the market, and the crypto-collateralized portion of CDP stablecoin supplies held 20.12%. Combining DeFi lending apps and CDP stablecoins, onchain lending venues held a 65.43% dominance over the market, down from 69.9% at the end of Q4 2024 and about flat from 65.18% at the end of Q1 2024.

Additional Views of DeFi Lending

DeFi borrowing strongly rebounded from March 31 to May 26. The introduction of Pendle tokens on the Aave protocol gave DeFi a big boost. Since the passage of a proposal greenlighting their implementation on Aave v3 Core, the application has seen nearly $1.4 billion worth of these tokens deposited. Allowing loan-to-value ratios as high as 90% and paying some yield, these assets serve as capital-efficient collateral that has fueled borrowing activity on Aave. The vast majority of Pendle token suppliers are using the assets as collateral to borrow stablecoins, such as USDC and USDT.

Since March 31, the value of assets supplied to DeFi lending applications has increased $15.08 billion (+38.52%) to $54.23 billion. Ethereum maintains a dominance of 80.97% over all DeFi lending supplies as of May 26, 2025. Solana held $2.8 billion of deposits and a share of 5.1% as of the same day.

Assets borrowed on DeFi lending applications have followed a similar path to that of supplies. Between March 31 and May 26, DeFi lending apps added $5.62 billion (+31.14%) worth of new borrows. Ethereum saw the largest growth in absolute terms, adding $5.05 billion (+36.39%) of new borrows. Borrows on Solana saw the largest relative expansion, adding $478.75 million, representing 41.17% growth.

Onchain and Offchain Interest Rates

The following compares borrow rates for stablecoins, BTC, and ETH in onchain lending markets and through offchain venues.

Stablecoins

The weighted average stablecoin borrow rate declined from 11.59% on January 1 to 5% as of May 26, using the seven-day moving average of the weighted average stablecoin borrow rates and CDP stablecoin mint fees. The 56.86% decline since the start of the first quarter can be attributed to declines or stagnation in lending market utilization as asset prices struggled and onchain activity declined. Updates to lending market parameters also contributed to the lower borrow rates. Aave, the largest DeFi lending app for stablecoin borrows, relaxed its interest rate parameters to promote optimal utilization of its markets and to compensate for the slowdown in economic activity onchain.

The following breaks out the costs of borrowing stablecoins through lending applications and minting CDP stablecoins with crypto collateral. The two rates track each other closely, with CDP stablecoin mint rates typically being less volatile because they are manually set periodically and do not move in real-time with the market.

Over-the-counter stablecoin interest rates have slipped in tandem with onchain lending rates since the start of the year. Notably, over the last five months, the spread between OTC and onchain borrow costs for USDC and USDT has been consistently around 2 percentage points in the case of USDC and around 4 percentage points in the case of USDT. The spreads have been tighter and less volatile than historical values, suggesting that CeFi lenders may be more consistently benchmarking their rates against DeFi markets.

The chart below tracks the same rates as above, but for USDT lending.

Bitcoin Lending

The chart below shows the weighted borrow rate for wrapped bitcoin (WBTC) on lending apps across several applications and chains. The cost of borrowing WBTC onchain is often low because wrapped bitcoin tokens are primarily used for collateral in onchain markets and are not in high demand for borrowing. In contrast to stablecoins, the cost of borrowing BTC onchain in the last year or so has been relatively stable, because users borrow and repay it less frequently.

The historical divergence between onchain and offchain (over-the-counter) borrow rates for BTC persisted throughout the first quarter. In the OTC market, BTC demand is driven primarily by two factors: 1) the need to short BTC and 2) the use of BTC as collateral for stablecoin and cash loans. The former is a source of demand not found in onchain lending markets, hence the spread between onchain and over-the-counter BTC borrow costs.

ETH and stETH

The chart below shows the weighted borrow rate for ETH and stETH (staked ether on the Lido protocol) on lending apps across several applications and chains. The cost of borrowing ETH has historically been higher than that of stETH because users borrow ETH to fuel looping strategies to gain leveraged exposure to the Ethereum network staking APY – using stETH as collateral. As a consequence, the cost of borrowing ETH typically fluctuates within 50-75 basis points of the Ethereum network staking APY. This strategy becomes uneconomical when the cost to borrow exceeds the staking yield, so it is uncommon for the borrow APR to clear the staking APY for extended periods of time. As with WBTC, the cost of borrowing stETH is often low because the asset is primarily used as collateral and maintains relatively low utilization.

As with bitcoin, borrowing ETH through onchain lending apps is noticeably cheaper than borrowing it over the counter. This is driven by two factors: 1) as with BTC, there is demand from short sellers through offchain venues that is not as common onchain and 2) the Ethereum staking APY serves as a floor rate for offchain borrowing because there is little incentive for suppliers to deposit assets with offchain venues, or for offchain venues to lend assets out, at rates below the staking APY.

Corporate Debt Strategies

Several bitcoin and crypto treasury companies have debuted throughout the first five months of the year, notably among them Nakamoto and Twenty One (a collaboration between Cantor Fitzgerald, SoftBank, and Tether). These companies are following playbooks similar to that of Michael Saylor’s Strategy. The blueprint is to issue convertible debt and/or sell new equity to shore up funds to purchase spot crypto assets. This strategy is currently being done at meaningful scale with BTC, but companies have also begun carrying it out with other cryptocurrencies, including SOL and ETH.

The debt component of the strategy has raised concerns about its sustainability; the lack of awareness of the timing of the debt maturity and absolute size of debt burdens only adds to the uncertainty about a trade that is becoming more and more crowded. This section details the companies that have issued debt to acquire treasury assets, the timing of their debt issuance, and the minimum maturity dates of their debt. It does not discuss the equity sales that are used to purchase treasury assets, because under this method, there are no obligations for companies to default on, and no liability is created to fund asset purchases.

The table below details several crypto treasury companies acquiring BTC, ETH, SOL, and XRP. It includes their names, locations, targeted treasury assets, and funding methods.

The timeline below details the history of debt issued by crypto treasury companies, including Strategy, Riot, Marathon, Semler Scientific, Gamestop, and H100, to acquire treasury assets. As of May 27, there was at least $12.703 billion of outstanding debt carried by bitcoin treasury companies. Strategy carries the most outstanding debt at $8.214 billion, accounting for 64.66% of the observed outstanding debt.

Most of the observed debt issued to purchase treasury assets matures between June 2027 and October 2028. Strategy had $2.2 billion of its outstanding debt called by investors between July 2024 and February 2025, then reissued $2 billion more on February 20, with a maturity date in March 2030.

The following details the quarterly effective interest service costs of some bitcoin treasury companies. It shows how much interest each company owes on the debt used to fund their bitcoin treasuries. Strategy owes the most on a quarterly basis as of May 30 at $17.5 million per quarter. Companies that rely on zero-coupon debt to finance their treasury strategies are excluded from the chart.

A common strategy among bitcoin treasury companies involves issuing zero or low-coupon convertible notes, which allow the debt to be converted into equity if the underlying stock reaches a pre-defined price. This structure enables companies to finance their bitcoin purchases through debt while retaining the option to settle the obligation via equity issuance, thereby preserving cash. As a result, the degree to which these notes are “in the money” (i.e., when the company’s share price exceeds the conversion price, making conversion to equity economically favorable) reflects the extent to which equity dilution may be used to repay the principal.

Futures Market

Open interest for futures contracts across centralized and decentralized venues, including perpetual futures (perps), has grown substantially from the early-April lows. After hitting a low of $68.47 billion on April 8, the total amount of futures OI climbed to $115.97 billion on May 24, increasing by $47.5 billion or 69.37%. The bounce back from the April low was majority driven by bitcoin OI, which added $22.89 billion over the same period. Ethereum OI grew the most in relative terms, expanding by 85.63%. Notably, Solana OI grew by $2.31 billion (+84.71%).

Futures open interest across all the major venues stands at $115.97 billion as of May 24. This represents an increase of $886.6 million (+0.77%) from the amount of open interest on January 1. Over the same period, bitcoin futures open interest decreased $1.66 billion (-2.66%), Ethereum futures open interest increased $2.18 billion (+7.95%), Solana futures open interest increased $758.3 million (+17.74%), and the futures open interest of all other crypto assets decreased $397.33 million (-1.89%).

CME’s share of open interest, including perps and non-perps, stood at 24.63% as of May 24, up 109 basis points from the April 8 market-wide OI low and up 349 basis points from January 1. The storied Chicago exchange’s share of total market OI peaked at 27.84% on February 22 and has since declined 322 basis points.

CME’s share of total Ethereum OI (calculated as CME Ethereum OI divided by total market OI) has grown substantially from the end of last year, expanding from 17.71% on November 1 to 39.1% on May 24.

Perpetual Futures

Perps OI stood at $83.87 billion as of May 24, 2025, growing by $34.62 billion (+70.3%) from the April 8 low of $49.25 billion. Still, perps OI is $22.13 billion (20.88%) below the all-time high of $105.99 billion reached on December 8, 2024.

Perps OI dominance was 72.32% as of May 24, 2025, and has declined 39 basis points from the April low in market-wide OI and 266 basis points from January 1. The decline in perps’ dominance amid climbing CME share over the same periods suggests that the centralized, institutional futures exchange has been gaining market share even as overall open interest has rebounded. This signals a potential shift driven by growing institutional participation in futures markets.

Binance is the largest venue by perps OI, holding $25.18 billion in open interest and capturing 30.02% of the market as of May 24. However, an up-and-comer is nipping at Binance’s heels.

Hyperliquid’s rapid growth through the first five months of the year has made it the fourth-largest perps venue by OI. As of May 24, Hyperliquid carried $9 billion in open interest, equating to 10.73% of the market. Notably, Binance and Bybit have seen $3.21 billion and $2.62 billion reduction,s respectively ($5.83 billion combined) in OI between January 1 and May 24, while Hyperliquid has seen growth of $5.73 billion in OI. This suggests that Hyperliquid may be siphoning activity from the two exchanges.

Hyperliquid saw a parabolic rally in open interest between April 1 and May 24, growing $5.99 billion (+199.14%) from $3.01 billion in open interest. Over this period, its share of the perps market measured by open interest grew from 5.36% to 10.73% as of May 24.

Conclusion

Leverage in crypto markets continues to evolve. While DeFi lending pulled back at the start of the year, activity has since rebounded meaningfully. Stablecoin borrow costs have dropped across the board, and new collateral types such as Pendle tokens are helping revive lending demand. On the CeFi side, the market has grown modestly, with a small group of lenders continuing to dominate. Bitcoin treasury companies have doubled down on debt-fueled crypto accumulation, and futures markets have come roaring back from their April lows. CME’s rising share of open interest and Hyperliquid’s breakout suggest two very different but equally important trends: growing institutional interest and the emergence of new retail-focused platforms. Taken together, these shifts hint at a more diversified and competitive leverage landscape that looks different from past cycles. While diversification can help reduce the market’s reliance on any single source of leverage and the venues offering it, it also creates interdependencies between each source (liquidations in the OTC market can affect bitcoin treasury companies, for example).

All third-party company product and service names in this presentation are for identification purposes only. The product names, logos, and brands are the property of their respective owners. Use of these names, logos, and brands does not imply endorsement.