Crypto Leverage Shocker: $61B Risks EXPOSED [Full Report]

追加: 2026-05-05

[00:00:00]We have October's massive liquidation event to thank for kicking off this cryptobear market. And since then, many investors have wondered whether leverage has made the whole crypto market weaker.

[00:00:12]But onchain data suggests otherwise. A recent report by Galaxy Research provides some much needed clarity, and today we're breaking it down for you in simple terms. So, the report is titled, quote, "The state of crypto leverage Q4 2025 surviving a stress test." As always, we'll be giving you the key takeaways right here in this video, but we'll leave a link to the full report down in the description for you if for some unfathomable reason you're interested in reading it. Now, the report begins by exploring the world of cryptocolateralized lending. Its authors highlight some well-known casualties from 2022 and 2023, including big names like Voyager, Celsius, BlockFi, Genesis, and Silvergate. However, there are also a few new additions such as Loopscale, a modular order bookbased lending protocol on Salana, and Milo, a crypto mortgage lender that created the crypto mortgage category in 2022. The report then zooms in on lenders in centralized finance or CFI. By the end of Q4 last year, there were over $27 billion in open CFI borrows. This was up 11% from Q3 and marked eight consecutive quarters of growth. Specifically, CFI borrows grew by 280% since the bare market bottom of Q4 2023 when open borrow sat at just $7 billion. That said, it's still a way off from CFI's peak of $ 37 billion back in Q1 2022. Notably, in Q4, most CFI lenders that weren't stable coin issuers saw their loan books remain flat or shrink slightly. The big exception here, though, was Coinbase, which recorded its largest quarterly loan growth ever, adding roughly $438 million in new loans, almost 48% higher than in Q3. The dominant force in CFI lending though was Tether, which controlled 61% of the market by the end of Q4 last year.

[00:02:16]Intriguingly, Maple Finance also cracked the top three with a 6.6% share, narrowly edging out Galaxy themselves at 6.5%. This means that collectively, the top three lenders now control a whopping 75% of the CFI lending market. However, the report's authors stress that market share alone doesn't paint the full picture of CFI lending because different lenders operate under different constraints. For instance, some only offer specific loan types like BTC or altcoin back loans while others only serve certain clients or jurisdictions.

[00:02:52]These structural differences are why some lenders can scale faster than others. Anyhow, the report then compares CFI and DeFi lending. Outstanding DeFi loans fell 24% in Q4 to about $33 billion. Combined with CFI, that puts total cryptocolateralized borrows at roughly $61 billion by the end of Q4 last year, which is actually an 11% drop from Q3. Still, that's higher than the 2020 2021 cycle peak of around 58 billion. The report notes three key reasons for the decline in DeFi borrowing. The first relates to looping strategies which became less viable after last year's liquidation event on the 10th of October. Put simply, the spread between DeFi borrowing costs and what you could earn on a yield thinned out to the point that looping strategies weren't as profitable anymore. The second key reason D5 borrowing dropped also relates to the October drawdown, which had two knock-on effects. First, the value of collateral backing loans fell dramatically, forcing borrowers to repay their loans or else face being liquidated. And second, the risk appetite for new leverage loans quickly dried up as the market continued to trend down. Anyway, the third key reason for the drop in DeFi borrowing was that CFI borrowing costs hit unusually low levels in Q4. off-chain rates fell below onchain rates, making CFI borrowing especially attractive and opening a clear window of opportunity for borrowers. This doesn't happen often.

[00:04:29]Usually, D5 borrowing is similarly priced, if not cheaper. Whatever the case, though, Q4's decline in outstanding D5 borrows meant that its lead over CFI lending shrank back to levels last seen in Q1 of 2025. By the end of the year, DeFi lending apps accounted for 54% of total lending across both DY and CFI, down from 64% in Q3. Then the report turns to collateralized debt position or CDP stable coins. For context, collateralized debt position stable coins are overcolateralized with crypto, just like with other crypto loans, but instead of borrowing crypto, you mint a synthetic USD peg token against your collateral. Anyway, the authors note that there was a 3% increase in CDP stable coin supply from Q3 to Q4.

[00:05:22]However, they add that some of the data may have overlapped since some C5 firms use CDP stable coins to fund loans to their off-chain clients. Regardless, total cryptocolateralized lending fell nearly 10% in Q4 to just under $70 billion, almost 7% below the 2021 peak of roughly $75 billion. By the end of Q4 last year, D5 lending apps made up 48% of the cryptocolateralized lending market. Meanwhile, CFI venues held 39% and the crypto collateral part of CDP stable coins accounted for a further 12%. And if you combine D5 lending apps and CDP stable coins, then onchain lending made up 60% of the market, although this was down slightly from the previous quarter. Okay, the next part of the report zooms in on DeFi lending for stable coins and major cryptos like Bitcoin and Ethereum. But before we get into that, like the video and subscribe to the channel if you haven't already.

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[00:06:35]So sign up today using the link in the description or this QR code. Okay, back to the video. The report notes that outstanding borrows on DeFi apps have shrunk a massive 40% from their all-time highs from $47 billion in September 2025 to 28 billion by February this year.

[00:06:55]What's crazy is that most of this activity was on Ethereum. Specifically, DeFi lending on Ethereum peaked at $37 billion, but has since fallen by $16 billion. That accounts for roughly 85% of the total draw down in DeFi lending since the September peak. Next, the report turns to over-the-counter or OTC borrowing. Now, for context, OTC deals are arranged by a private entity, usually between a lender and an accredited investor. The loans terms like interest rates, the maturity period, and even the value of the borrower's collateral are agreed up front. Anyway, the report's authors explained that OTC interest rates for circles USDC declined from 6.5% to 3.5% in Q4, but have since remained pretty flat. And as mentioned earlier, off-chain borrowing rates for stable coins fell below onchain borrowing rates for the first time in almost 2 years, creating a rare opportunity for off-chain borrowers. The authors also provide a chart showing the OTC borrower rates for Tether's USDT, which show a similar trend, also falling from around 6.5% in Q3 to around 3.5% in Q4. The difference, though, is that off-chain borrowing rates for USDT have been more tightly correlated with onchain borrowing rates than has been the case with USDC. The report then turns to borrowing rates for Bitcoin, or more specifically, wrapped BTC. The authors note that borrowing costs for WBTC are typically low because most people use WBTC for collateral. There's not really much demand for borrowing it. As a result, onchain borrowing costs for BTC have remained fairly consistent, unlike stable coins, which have constant borrowing demand. In any case, the authors note that Bitcoin lending continued its historical trend in Q4, where borrowing BTC on chain remained cheaper than borrowing OTC. However, the gap between the two thinned with onchain costs rising and off-chain costs falling. The authors point out that OTC borrowing of Bitcoin has two primary demand drivers. Shorting BTC's price and using BTC as collateral for loans in stable coins or cash. Next up are the borrowing rates for Ethereum's ETH and Lido's staked ETH or ST. Notably, borrowing ETH has historically been more expensive than borrowing ST ETH simply because normal ETH is in higher demand.

[00:09:24]As the authors explain, borrowing demand comes from looping strategies where users borrow ETH, stake it, then receive Lido's ST ETH, and then use that ST as collateral to borrow more ETH to effectively boost their staking rewards.

[00:09:39]But again, this looping strategy stops making sense when borrowing costs rise above the staking yield. So, ETH borrow rates rarely stay above staking returns for long. And just like with WBTC, the demand for borrowing STE is typically lower than borrowing normal ETH. Because while ETH is used for all kinds of things across the Ethereum network, ST ETH is typically used as collateral and not much else. The authors then explain how people use liquid staking tokens, LSTs, and liquid restaking tokens, LRTs, in their looping strategies. Basically, the user deposits LSTs and LRTs as collateral. And because both variants generate a yield, they can effectively borrow ETH at low or even negative interest rates. This ETH is then staked for more LSTs and LRTs, and the cycle begins again. And if you're wondering what could possibly go wrong, well, you're not alone. But believe it or not, this strategy has been surprisingly successful. Albeit for a few occasions where the borrowing costs for ETH have spiked above the staking APY. For example, in July last year, the cost to borrow wrapped ETH on Ave spiked well above the staking yield. Anyway, the report then looks at ETH's OTC borrowing rates. Like with BTC, borrowing ETH onchain has historically been a cheaper method than borrowing off-chain through OTC venues for two reasons similar to what we mentioned with Bitcoin. First, there isn't much off-chain demand for borrowing ETH to short its price. And second, ETH staking yield serves as the floor rate for off-chain borrowing since there's not much incentive for users to deposit their assets offchain for less than what they'd get through staking rewards. This works both ways, too.

[00:11:27]Off-chain lending rates serve as the floor rate for staking APY and staking APYs serve as the ceiling rate for off-chain borrowing rates. Right, folks, a quick interlude because I think you're going to want to know this as well. Now, a lot of people still think Coinbase is just a beginner platform, but with Coinbase Advanced, that's actually changed quite a bit. You're getting lower fees, proper charting tools, real-time order books, and full control with limit and stop orders. So, it all feels much closer to a professional trading setup, but without the usual complexity. So, whether you're stepping up from basic apps or just want a cleaner, more reliable platform, it is definitely one to have on your radar.

[00:12:10]And if you want to try it out, there's currently a limited offer for Coin Bureau viewers. You can get $40 in Bitcoin when you trade $40. Now, this is available in the US, Canada, Europe, Singapore, and Australia, but it's capped to the first 350 people, so it may not last long. You can scan the QR code on screen now, or check the link in the description and pinned comment for full details. And with that, let's get back to it. Okay, the next part of the report shifts to corporate debt strategies of digital asset treasuries or DATs. basically any publicly traded company with crypto on its balance sheet. The report notes that Galaxy tracked more than 14 billion dollars in outstanding debt through Q4 used to bolster crypto reserves. Notably, this debt stayed remarkably flat throughout Q4, which makes sense considering market conditions at the time. Then the authors provide a chart showing the earliest maturity, call or put dates of the debt taken on by various DATs. For anyone confused, the maturity date is when the debt naturally comes due. A call date is when a DAT chooses to pay it off early, and the put date is when lenders can force ADAT to repay early. The more you know. Anyhow, the report explains that the earliest debt isn't due until June 2027, and even then, the amount due is pretty minimal. But things could get spicy between Q2 and Q4 of 2028, though, when tens of billions of dollars will need to be repaid. That said, this gives Treasury companies plenty of time to figure out how to stay profitable and to handle those repayments comfortably without causing chaos in the market.

[00:13:53]Well, fingers crossed. Anyway, scary thoughts aside, the report then looks at the quarterly interest due on debt issued debt. You might assume that Michael Sailor's Strategy would pay the most since it's the world's largest treasury company, but you'd be wrong.

[00:14:08]The top spot actually goes to VHF Parent LLC, a subsidiary of Virtue Financial.

[00:14:16]Its interest burden is $66.2 million per quarter, while Strategies sits at just $17.5 million. It's worth noting that Virtue Financial currently holds around $410 BTC valued at roughly $29 million at the time of shooting, roughly half of VFH's quarterly debt burden. That said, the company's crypto exposure doesn't necessarily compare to its interest costs since the two are fundamentally different metrics. Still, food for thought. Whatever the case, the report then shows the total cryptoreated debt outstanding in Q4, which sat at $84 billion. This sounds like a lot, but it had actually reduced slightly from Q3 when total debt was at an all-time high of more than $91 billion. Thank god it doesn't have to be repaid for years, eh?

[00:15:05]Now, the next part of the report looks at the futures market. The authors explained that in Q4, open interest in futures, including perpetual futures, dropped by almost 40% from Q3, from 197 billion to $120 billion. And unless you're new to crypto or have been living under a rock for the last 6 months, you'll know this was driven by the 10th of October liquidation event. That's when almost $20 billion was wiped out of the crypto market in a single day, making it the largest liquidation event in crypto's 17-year history. As a result of those liquidations, the futures market struggled throughout Q4. Bitcoin futures open interest fell about 34% and Ethereum futures dropped the same amount. Salana futures open interest fell even harder, down over 46% while the broader altcoin market nearly halved. Even by February this year, open interest still hasn't recovered, suggesting leverage is still working its way out of the system across the board.

[00:16:04]That said, the authors also note that if you're assessing the total amount of leverage in the crypto market, simply looking at futures open interest won't give you the full picture. In many cases, open interest is also offset with long spot positions, allowing traders to gain delta neutral exposure to the underlying asset. Next, the report reveals that Binance had the largest share of the open interest perpetual futures market, controlling 20% by the end of Q4. The CME ranked second with 13% followed by Gate with roughly 10% and Hyperlquid with around 6%. And finally, the authors note that perpetual open interest fell by a massive 39% in Q4 from around $158 billion at the end of Q3 to around 96 billion by year end.

[00:16:51]And things have only worsened since then, too. By February, perpetual open interest dropped to roughly $75 billion, less than half of its peak in early October. That said, perpetual still account for about 80% of open interest, basically unchanged from Q3. And with that, folks, we've reached the end of this report. Hallelujah. And hopefully the end of a few misconceptions about crypto leverage, too. And just a reminder, you can find the full report linked in the description below. For now though, you're probably wondering what all of this means for the future of leverage in the crypto market. Well, as the authors conclude, Q4 provided a major stress test for crypto, but the outcome was actually quite positive.

[00:17:35]Yes, leverage came down hard. DeFi borrowing shrank, futures open interest was wiped out, and a lot of speculative strategies simply stopped making sense.

[00:17:45]But crucially, this all happened in an orderly way. CFI lenders absorbed the largest liquidation event in crypto's history without triggering a broader cascade of failures, while DeFi did exactly what it's designed to do, automatically deleveraging as prices and yields fell. What's even more interesting, though, is where leverage now lives. It's more concentrated, more transparent, and increasingly split between sophisticated onchain strategies and institutional off-chain borrowing.

[00:18:14]The wild reflexive leverage of previous cycles hasn't disappeared. But it's clearly being replaced by more structured, more riskaware models. That doesn't mean the danger's gone. Far from it. As yields rise again and prices recover, leverage will creep back into the system like it always does. But this time, it's returning to a crypto market whose infrastructure has already been stress tested under extreme conditions.

[00:18:39]And that's arguably the biggest takeaway of all because it shows that crypto's credit markets are growing up.

[00:18:45]Naturally, this is great news for retail and institutional investors alike.

[00:18:49]Although, it's reassuring to see that even the massive liquidation event in October wasn't enough to scare institutions away from crypto. If you've been keeping up with the channel, you'll know that institutions have remained bullish despite everything, and many have been positioning themselves to take full advantage. More on that in the video right over here, by the way. In any case, the foundations for crypto leverage are stronger than they've ever been. And those foundations will only grow stronger from here. And as the regulatory backdrop continues to improve, institutions will become more and more confident in exploring some of the more nuanced corners of crypto like DeFi protocols that offer new ways to generate passive yield. The main downside, at least for now, is that venture capitalists or VCs haven't been all that interested in crypto lending.

[00:19:37]According to a separate Galaxy report from April last year, just 1% of VC funding now flows into the lending sector. That said, this could change as crypto continues to prove its resilience alongside that improving regulatory backdrop I just mentioned. So, taken together, this means that leverage in the crypto market will continue to be the biggest driver for price performance and could even have a bigger impact in the future. In case you didn't know, large price movements in major assets like BTC and ETH are often caused by leverage traders being squeezed and liquidated one way or the other. And with institutions gearing up for the next bull market, whenever that finally arrives, those moves could be even bigger than many of us currently anticipate. In the meantime, that gives the rest of us time to position our own portfolios and prepare to ride the wave.

[00:20:27]Just don't expect smooth sailing because those waves are almost certainly going to get choppy.

[00:20:34]>> It's choppy.

[00:20:35]>> Okay, folks, that's all from me. Now, it's time to hear from you. Do you think crypto leverage will be the driving force behind crypto prices in the coming months, or do you see lots of sideways price action that leaves us feeling a bit meh? Let us know your thoughts in the comments down below. If you want to learn more about how Strategy plans to reach 1 million BTC by the end of the year, then check out the video right over here. And if you want to learn about why the Clarity Act could carry a few hidden dangers, then check out the video over here. Okay, thank you all for watching and I'll see you in the next one. This is Guy signing off.