On-chain leverage ratio across Decentralized Finance (DeFi) has climbed to levels last seen in 2021, according to Binance Research.
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.
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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.
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