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On-chain leverage ratio across Decentralized Finance (DeFi) has climbed to levels last seen in 2021
While the metric may suggest elevated risk, the increase was driven largely by a decline in total value locked (TVL) rather than a surge in borrowing demand.
What Pushed DeFi Leverage to 2021 Levels
The on-chain leverage ratio measures the extent of borrowing and leveraged activity relative to the capital locked in DeFi protocols (TVL). It rose to about 38%, driven by TVL compression.
The drop in TVL followed a series of major DeFi security incidents in April. BeInCrypto reported that hackers stole about $606 million during the month.
Most of the damage came from attacks targeting Kelp DAO and Drift Protocol, with the Kelp DAO exploit alone resulting in losses of approximately $292 million.
The breaches prompted investors to withdraw capital from DeFi platforms, leading to a sharp contraction in value locked across multiple blockchain ecosystems.
“April’s DeFi exploits triggered ~US$13B in TVL outflows,” the post read.
Consequently, the rise in the on-chain leverage ratio reflected a shrinking pool of collateral rather than a fresh increase in borrowing activity or in traders’ risk-taking.
Despite the broader market pullback, meaningful deleveraging has yet to materialize, Binance Research said.
As leverage remains elevated relative to a shrinking DeFi capital base, the market could remain vulnerable to further liquidations and position unwinds if prices weaken further.
For now, DeFi sits in a fragile balance. Leverage looks elevated even as borrowing activity has not risen proportionally, and the system has yet to reset after the spring outflows.
Read the Original story Exploit-Driven TVL Drop Pushes DeFi Leverage Back to 2021 Levels by Kamina Bashir at beincrypto.com
Source: finance.yahoo.com