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Crypto borrowing hit a dizzying $73.6 billion last quarter, a new high. But, unlike the wild west days of 2021-22, this leverage isn’t built on sand. The debt composition looks surprisingly robust.
On-chain lending is devouring the crypto-collateralized debt market like a black hole. Galaxy Research reveals a seismic shift: nearly 67% of all crypto loans are now happening directly on the blockchain. This isn’t just growth; it’s a revolution. Four years ago, on-chain lending barely registered, representing less than half the market. What’s fueling this explosive takeover?
DeFi lending exploded, soaring 55% to a record-shattering $41 billion. Fueling this meteoric rise? Irresistible user incentives powered by points and clever collateral innovations like Pendle Principal Tokens, unlocking new possibilities for borrowers and lenders alike.
Centralized lenders bounced back, fueled by a 37% surge in borrowing to $24.4 billion. Yet, the market still has ground to cover, remaining a third shy of its towering 2022 peak.
Centralized lending graph (Galaxy Research)
The uncollateralized lending landscape, scorched by the last market downturn, now resembles a desert. Institutional players and those eyeing public markets are flocking to the oasis of full-collateral models. Tether, a financial behemoth, reigns supreme in this new world, commanding a staggering 60% of the collateralized CeFi lending market.
DeFi’s tectonic plates shifted last quarter: lending apps now dominate, seizing over 80% of the on-chain market. CDP-backed stablecoins, once titans, have shrunk to a mere 16%. Aave and Fluid’s daring deployments on Plasma ignited a frenzy, with Plasma alone attracting a staggering $3 billion in borrows within a mere five weeks of launch – a testament to the insatiable appetite for decentralized credit.
Just weeks after Q3 wrapped, crypto markets witnessed an unprecedented bloodbath. A leverage-fueled frenzy turned catastrophic, triggering a $19 billion liquidation tsunami – the single largest wipeout crypto futures had ever seen.
Galaxy argues the market wobble wasn’t a sign of deep-seated financial rot; rather, it was a mechanical hiccup. Exchange safety nets, those auto-deleveraging systems, simply kicked in, shedding risky positions like ballast to keep the ship afloat.
While the crypto world dreams of decentralized finance, corporate treasuries are playing a different game – one of high-stakes leverage. Over $12 billion in debt fuels crypto-acquiring firms, and the overall industry debt mountain has surged to a record-breaking $86.3 billion. Are these bold bets or a precarious balancing act?
Crypto leverage is creeping back, but this time, it’s different. Think less Wild West saloon credit and more Fort Knox collateral. The rocket fuel’s still there, but the fuse is a whole lot longer – and visible.
Thanks for reading Crypto Leverage Hits Record High in Q3 as DeFi Dominance Reshapes Market Structure: Galaxy
