Introduction
Leverage in the cryptocurrency market saw a resurgence in the second quarter after experiencing a downturn in crypto-backed loans and futures trading during the first quarter of the year. Following the market volatility surrounding Liberation Day in early April, a renewed sense of optimism regarding cryptocurrencies and an uptick in asset prices have fueled this increase in leverage. Remarkably, on-chain crypto-collateralized loans surged by 42% during this period, reaching a historic peak of $26.5 billion. Digital asset treasury companies (DATCOs) were a focal point in the second quarter, but their heavy reliance on non-debt strategies for asset acquisitions resulted in no change in the total outstanding debt from the previous quarter. This report examines the trends in on-chain leverage across both decentralized finance (DeFi) and centralized finance (CeFi) lending platforms, publicly traded treasury firms, and the crypto futures market, building on insights from the Q1 leverage report while including new developments in these areas.
Key Takeaways
As of June 30, Galaxy Research reported a total of $17.78 billion in active CeFi loans, reflecting a quarter-over-quarter growth of 14.66%, or $2.27 billion, and a substantial increase of $10.59 billion (147.5%) since the lowest point of the bear market in Q4 2023, when it stood at $7.18 billion. The value of outstanding loans on DeFi platforms rebounded significantly from the first quarter, climbing by $7.84 billion (+42.11%) to reach $26.47 billion, marking a new all-time high. DATCOs remained a significant theme during the second quarter, with Ethereum-based treasury companies becoming increasingly prominent, contrasting with their limited presence in the earlier months of the year. Despite the absence of new debt issuances by Bitcoin DATCOs, the overall debt balance for treasury companies with accessible data remained unchanged. Notably, June 2028 is a critical month to watch, as it will see $3.65 billion of outstanding debt maturing. The open interest for futures contracts, including perpetual futures, rose substantially quarter-over-quarter, reaching $132.6 billion by June 30. Perpetual futures open interest also increased significantly, amounting to $108.922 billion as of June 30, representing a $29.2 billion growth (36.66%) from the first quarter.
Crypto-Collateralized Lending
The market landscape below illustrates some key players in both the CeFi and DeFi crypto lending sectors. Several major CeFi lenders faced significant challenges in 2022 and 2023 as crypto asset prices declined and liquidity diminished, indicated by red caution dots on the map. Since the last leverage report from Galaxy, five new DeFi applications, one CeFi lender, and one collateral debt position (CDP) stablecoin have been included in our analysis. Additional DeFi apps now featured include Fraxlend on Ethereum, Fraxtal, and Arbitrum; Curve Llamalend on Ethereum, Arbitrum, Fraxtal, and OP Mainnet; Lista on BSC; Hyperlend on HyperEVM; and Venus on BSC, Ethereum, Unichain, Arbitrum, zkSync Era, Base, OP Mainnet, and opBNB. Existing applications have also expanded their chain coverage, and the newly added CDP stablecoin includes new CeFi lenders.
CeFi
The table below provides a comparative analysis of CeFi crypto lenders in our market review. Some companies offer diverse services to investors; for instance, Coinbase primarily functions as an exchange but also provides credit through over-the-counter cryptocurrency loans and margin financing. This analysis focuses solely on the volume of their crypto-collateralized loan portfolios. This quarter, Figure Markets has joined the report, showcasing its substantial presence in the on-chain credit sector with $11.1 billion in private credit and home equity lines of credit (HELOCs), including a Bitcoin-backed lending product. Although this product has been operational since April 2024, incentives for its use and growth have only recently been introduced. Additionally, Nexo, operational since 2018 and serving non-U.S. clients, has now contributed to our report and is planning to re-enter the U.S. market after exiting in 2023. By June 30, Galaxy Research noted $17.78 billion in open CeFi loans, reflecting a quarter-over-quarter growth of 14.66% or $2.27 billion, and a significant increase of $10.59 billion (147.5%) since the bear market low of $7.18 billion in Q4 2023.
Market Dynamics of CeFi Lending
Galaxy Research identifies several key factors driving growth in the CeFi lending sector. Firstly, the reflexive nature of borrowing activities in response to rising asset prices has been a significant contributor, with increased borrowing often following price hikes. Additionally, heightened competition within the market is likely influencing borrowing costs, keeping them more competitive and leading to attractive rates. Treasury companies are also increasingly turning to CeFi lenders for financing, indicating a new and substantial demand source. Ledn has dropped from the top three lenders by outstanding loans due to a strategic pivot towards bitcoin-backed lending, ceasing yield products and Ethereum from its offerings. This shift has resulted in Ledn achieving its highest quarter of bitcoin-backed loan originations, although its overall loan book has decreased compared to Q1. As of the end of Q2, Ledn’s portfolio consisted solely of USD-denominated loans, with 99% backed by Bitcoin and a small fraction tied to legacy Ether loans that will gradually phase out. Currently, Tether, Nexo, and Galaxy are the leading lenders tracked by Galaxy Research based on outstanding loan values, with Tether alone commanding a significant 57.02% share of the CeFi lending market.
CeFi and DeFi Lending Overview
The dollar value of outstanding loans on DeFi platforms rebounded impressively from Q1, increasing by $7.84 billion (+42.11%) to $26.47 billion, establishing a new all-time high. When combining DeFi applications with CeFi lending venues, total outstanding crypto-collateralized loans amounted to $44.25 billion by the end of the quarter, illustrating a quarter-over-quarter increase of $10.12 billion (+29.64%), primarily driven by growth in open loans across DeFi platforms. Only in Q4 2021 ($53.44 billion) and Q1 2022 ($48.39 billion) were there more loans outstanding than in Q2 2025. It is essential to note that there is a risk of double-counting between the total CeFi loan book size and DeFi loans, as some CeFi entities utilize DeFi applications for lending to off-chain clients. For instance, a hypothetical CeFi lender might use idle Bitcoin to borrow USDC on-chain and subsequently lend that USDC to an off-chain borrower, which would appear in both the DeFi open borrow statistics and the lender’s financial records as an outstanding loan to its client. The absence of clear disclosures complicates the process of filtering out this dynamic.
DeFi Lending Trends
DeFi borrowing has continued to reach new records, particularly with activity on Ethereum leading this growth. Ethena’s Liquid Leverage program, in partnership with Aave, along with the sustained use of Pendle principal tokens (PTs) on Aave and Euler, has significantly contributed to the expansion of on-chain lending markets. Utilizing the Liquid Leverage program and Pendle PT tokens enables users to implement “looping strategies” that allow them to arbitrage the yield of their collateral assets against the cost of borrowing associated with those assets. This strategy is commonly applied to Ethereum and staked Ethereum (stETH), providing users with leveraged exposure to the Ethereum staking annual percentage yield (APY). Since the end of the quarter on June 30, the value of assets supplied to DeFi lending applications has surged by $20.06 billion (+33.91%), amounting to $79.22 billion. Ethereum continues to dominate DeFi lending supplies, holding a substantial 78.22% share as of July 31, 2025, while Solana accounted for $4.3 billion in deposits, representing a 5.43% share. The assets borrowed on DeFi platforms mirrored this upward trend, with an increase of $6.2 billion (+33.94%) in new borrows. Ethereum recorded the most significant growth in both absolute and relative terms, adding $8.48 billion in new borrows at a growth rate of +42.73%.
Interest Rates in On-chain and Off-chain Lending
The following sections compare borrowing rates for stablecoins, Bitcoin, and Ethereum across on-chain lending markets and off-chain venues. For stablecoins, the weighted average borrowing rate has slightly risen from 4.7% on March 31 to 4.96% as of July 31, reflecting a modest increase in borrowing activity alongside few adjustments to stablecoin lending market parameters. Rates on Aave, the largest liquidity hub for stablecoins, have remained unchanged since mid-March 2025. The breakdown of borrowing costs for stablecoins through lending applications and the minting of CDP stablecoins shows that these rates are closely aligned, with CDP minting rates typically being less volatile due to their manual adjustments. Over-the-counter (OTC) interest rates for USDC have begun to rise slightly since early July, while rates on on-chain lending platforms have remained relatively flat. The current spread between on-chain USDC rates and OTC rates has reached its widest point since late December 2024. Despite price increases throughout the quarter, both on-chain and off-chain stablecoin rates have shown stability.
Trends in Bitcoin Borrowing Costs
The chart illustrates the weighted borrowing rate for wrapped Bitcoin (WBTC) across various lending applications and chains. On-chain borrowing costs for WBTC are typically low, as wrapped Bitcoin tokens primarily serve as collateral in on-chain markets rather than being in high demand for borrowing. Unlike stablecoins, the cost of borrowing Bitcoin has remained stable due to less frequent borrowing and repayment activity. The historical disparity between on-chain and over-the-counter (OTC) borrowing rates for Bitcoin persisted during the second quarter. In the OTC market, demand for Bitcoin is primarily driven by two factors: the need to short Bitcoin and its use as collateral for stablecoin and cash loans. These factors contribute to a demand for Bitcoin that is less commonly found in on-chain lending markets, resulting in a spread between on-chain and OTC borrowing rates.
Ethereum Borrowing Trends
The chart below depicts the weighted borrowing rate for Ethereum and staked Ethereum (stETH) across various lending applications and chains. Historically, the cost of borrowing Ethereum has been higher than that of stETH, as users often borrow Ethereum to execute looping strategies aimed at leveraging exposure to the Ethereum staking APY, using stETH as collateral. Consequently, the cost of borrowing Ethereum typically fluctuates within 30-50 basis points of the Ethereum network staking APY. This strategy becomes unfeasible when borrowing costs exceed staking yields, leading to infrequent situations where the borrowing annual percentage rate surpasses staking APY for extended periods. However, a significant spike in Ethereum borrowing rates occurred in July due to substantial withdrawals from Aave V3 Core on Ethereum. The impact of this event will be further explored in subsequent sections.
Over-the-Counter Borrowing Rates for Ethereum
Similar to Bitcoin, borrowing Ethereum through on-chain lending platforms is generally more economical than borrowing it over the counter. This can be attributed to two main factors: the presence of demand from short sellers in off-chain venues, which is less prevalent on-chain, and the Ethereum staking APY, which often serves as a benchmark for off-chain borrowing rates. Consequently, the on-chain borrowing rates for Ethereum typically function as a ceiling rate, while the staking APY acts as a floor rate for off-chain borrowing.
Corporate Debt Strategies
Digital asset treasury companies (DATCOs) remained a prominent focus in the second quarter, with the emergence of Ethereum treasury companies being a noteworthy trend. These entities were less common in earlier months of the year. A distinguishing factor between some Bitcoin and Ethereum treasury companies is that the former tend to leverage debt for asset acquisitions. In contrast, the larger Ethereum treasury companies that have surfaced recently have relied primarily on private investments in public equity (PIPEs), private placements, at-the-market offerings (ATMs), and asset sales, such as selling Bitcoin to acquire Ethereum. This reliance on non-debt financing, coupled with stagnant new debt issuances from Bitcoin DATCOs, resulted in no change in the outstanding debt balance for treasury companies with accessible data, which remains at $12.74 billion (including GameStop). The debt maturity timeline and magnitude have not shifted from our previous report, with June 2028 earmarked as a critical period, featuring $3.65 billion in outstanding debt due. A total of 16 months remains before the initial debt becomes due in December 2026. The quarterly interest obligations for DATCOs with interest-bearing debt have not changed from the last quarter, with Strategy (formerly MicroStrategy) being responsible for the highest interest payments at $17.5 million.
Futures Market Overview
Open interest in futures contracts, including perpetual futures, has seen substantial growth quarter-over-quarter. By June 30, futures open interest across major venues reached $132.6 billion, an increase of $36.14 billion (+37.47%) compared to the end of Q1 on March 31. Bitcoin futures open interest rose by $16.85 billion (+34.92%), while Ethereum futures increased by $10.54 billion (+58.65%). Solana futures also saw a rise of $1.97 billion (+42.82%), alongside growth in futures open interest for other crypto assets (+38.52%). It is crucial to understand that the total futures open interest does not equate to absolute leverage, as some of this interest can be offset by long spot positions, providing traders with delta-neutral exposure to the underlying asset. Since the last quarter, new futures venues have been added, including BingX, Bitunix, CoinEx, Coinbase, Gate, KuCoin, MEXC, and dYdX. CME’s share of open interest, encompassing both perpetual and non-perpetual contracts, stood at 15.48% as of June 30, marking an increase of 149 basis points from 13.99% at the end of Q1, though it has decreased by 58 basis points since the start of the year. CME’s total Ethereum open interest share reached 10.77% as of June 30, with a rise of 218 basis points since the end of Q1, but down 118 basis points from January 1, 2025. Similarly, CME’s share of total Bitcoin open interest increased by 380 basis points over the second quarter to 26.32%, but has dipped by 152 basis points since the year’s beginning.
Perpetual Futures Market Trends
As of June 30, perpetual futures open interest totaled $108.922 billion, reflecting a growth of $29.2 billion (+36.66%) compared to the end of Q1, though it remains 14.18% below the all-time peak of $126.7 billion recorded on June 10. Market shares for Bitcoin perpetuals accounted for 41.77%, Ethereum at 23.13%, Solana at 5.88%, and others at 29.23% as of June 30. The dominance of perpetual futures open interest stood at 82.02%, a drop of 231 basis points from Q1’s close. Binance leads the market with a 20.83% share of perpetual futures open interest, followed by Bybit at 15.41% and Gate at 12.85%. At the end of Q2, Hyperliquid commanded $7.516 billion in open interest, representing 6.91% of the total perpetual futures market.
Conclusion
The expansion of leverage within the crypto ecosystem continues to reach new heights, characterized by record levels of on-chain borrowing and multi-year highs in crypto-collateralized loans. This growth is driven by several factors, including the reflexive nature of borrowing activities in response to rising asset prices, the involvement of treasury companies as a new significant demand source, and the adoption of innovative, capital-efficient collateral types within DeFi. This upward trend is mirrored in the futures market, which has also experienced notable growth in open interest. Looking ahead, the ongoing collaboration between DeFi participants and the optimization of newly established collateral types suggest that the DeFi lending market is set for sustained growth in the forthcoming quarters. Simultaneously, CeFi lending is benefiting from momentum generated by treasury companies and overall market optimism.
