First Quarter Rebalances Leverage: DeFi Recovers Ground, CeFi Expands Silently, Treasury Burden Deepens

Galaxy Research’s latest quarterly report reveals that while the top-line figure for crypto leverage dipped slightly in Q1, the composition of risk is shifting — not shrinking. As institutional interest deepens and new leverage pathways emerge, crypto’s financial architecture is being quietly reconfigured.

Total crypto-collateralized lending fell by 4.9% to $39.07 billion, snapping a streak of quarterly increases. Yet beneath the surface, leverage is being redistributed across decentralized lending platforms, opaque centralized channels, and increasingly, corporate balance sheets.

DeFi: A Comeback Fueled by Token Innovation
DeFi lending began Q1 on shaky ground, falling over 21% amid declining activity. But that reversed quickly in the spring, thanks largely to the rise of Pendle’s yield-bearing tokens and their integration with Aave. These assets, boasting LTVs up to 90%, reignited borrowing demand. By May, DeFi lending volumes had rebounded more than 30% from their lows — a sign of renewed on-chain appetite, particularly on Ethereum.

CeFi: Growth Continues, but Transparency Lags
Centralized lenders posted steady gains, with loan volumes rising to $13.51 billion — a 9.24% increase from Q4. Key players like Tether, Ledn, and Two Prime were instrumental in the uptick. Still, Galaxy flags a major caveat: the true size of CeFi lending is obscured by a lack of public data. When including OTC desks and offshore credit operations, the actual exposure could be vastly higher than headline numbers suggest.

Treasuries: Leveraged Bitcoin Strategies Deepen
Corporate treasuries are taking on more leverage as firms issue debt to fund BTC purchases. MicroStrategy leads the pack, but others are following suit. Altogether, treasury-held Bitcoin debt has reached $12.7 billion — most of it maturing between 2027 and 2028. This growing pool of future obligations adds a new layer of macro risk tied directly to crypto market performance.

Derivatives: Parallel Growth in Institutional and Retail Segments
Rising CME open interest in ETH futures signals growing institutional exposure to crypto derivatives. Simultaneously, decentralized platforms like Hyperliquid are seeing increased retail participation — showing that leverage remains active across the spectrum.

Conclusion: A System in Flux, Not in Retreat
While headline leverage declined, Galaxy’s report makes clear that the crypto ecosystem is undergoing a structural transformation. Risk is no longer just in one place — it’s distributed across DeFi contracts, CeFi books, and treasury debt sheets. This dispersion may offer short-term resilience, but it also introduces new complexities and interdependencies that could be tested in the next market stress event.