Leverage across the crypto economy is evolving, not evaporating.

Total crypto-collateralized lending fell 4.9% quarter-over-quarter to $39.07 billion, the first decline since late 2023, Galaxy Research’s Q1 2025 report shows. But while the headline figure contracted, underlying dynamics suggest leverage is shifting form, not fading.

Lending in decentralized finance (DeFi) lending took a hit early in the quarter, sliding as much as 21%, before rebounding sharply in April and May. The turnaround was driven largely by Aave’s integration of Pendle tokens, whose yield-bearing structure and high loan-to-value ratios (up to 90%) sparked a wave of fresh borrowing. By late May, DeFi borrowing had surged more than 30% off the lows, with Ethereum leading the recovery.

Centralized finance (CeFi) lending climbed 9.24% to $13.51 billion, led by Tether, Ledn, and Two Prime. Still, Galaxy notes that a narrow set of public disclosures limits visibility into the true scope of centralized lending. Private desks, OTC platforms, and offshore credit providers likely push the actual total far higher. perhaps by 50% or more.

Meanwhile, bitcoin BTC treasury companies are quietly becoming a new systemic leverage node. Firms like Strategy (MSTR) have issued billions in convertible debt to fund BTC purchases. As of May, total outstanding debt across treasury firms stood at $12.7 billion, much of it set to mature between 2027 and 2028.

In derivatives, CME’s rising open interest especially in ether ETH futures signals accelerating institutional participation. At the same time, upstart exchange Hyperliquid has carved out a growing share of the perpetual futures market, underscoring the continued strength of retail-driven leverage.

The report points to an increasingly interconnected market structure, one where stress in a single venue or instrument could reverberate quickly across the ecosystem. Leverage, in crypto’s current cycle, may be more fragmented than before — but it’s no less potent.