Cryptocurrency-backed borrowing hit a record $73.6 billion in the third quarter, marking the industry’s most leveraged quarter on record, but the makeup of that leverage looks significantly healthier than during the 2021-2022 cycle.
According to Galaxy Research, the sharp increase is largely driven by on-chain lending, which now accounts for 66.9% of all crypto-collateralized debt, up from 48.6% during the previous peak four years ago.
DeFi lending alone surged 55% to an all-time high of $41 billion, supported by points-based user incentives and enhanced collateral types such as Pendle core tokens.
Centralized lenders also saw a rebound, with borrowing increasing 37% to $24.4 billion, although the market remains a third below its 2022 peak.
Survivors of the last cycle have largely abandoned unsecured lending, turning to fully collateralized models when seeking institutional capital or public listings. Tether remains the dominant CeFi lender, holding nearly 60% of tracked loans.
The quarter also saw a decisive shift within DeFi itself, with lending apps now capturing over 80% of the on-chain market and CDP-backed stablecoins shrinking to 16%. New channel deployments including Aave and Fluid on Plasma have helped fuel activity, with Plasma attracting more than $3 billion in borrowing within five weeks of launch.
It is worth noting that shortly after the end of the third quarter, a leverage-induced wipeout occurred, resulting in liquidations worth over $19 billion, the largest single-day cascade in crypto futures history.
Yet the Galaxy report asserts that the liquidation does not reflect systemic credit weakness: most positions were mechanically de-risked when the exchanges’ automatic deleveraging systems took effect.
Meanwhile, companies’ digital asset treasury (DAT) strategies continue to rely on leverage, with more than $12 billion in outstanding debt tied to companies acquiring cryptocurrencies. Total sector debt, including DAT issuance, reached a record $86.3 billion.
The data suggests that crypto leverage is increasing again, but on firmer and more transparent footing, with collateralized structures replacing the opaque, unsecured credit that fueled the last boom and bust cycle.
