DeFi Leverage Hits 38% as Borrowers Refuse to Exit

A high leverage ratio with sticky debt leaves the system exposed to forced selling if prices drop further. DeFi loans are typically overcollateralized. That gave many borrowers room to avoid liquidation during the recent slide. Some held on expecting a rebound. Others kept arbitrage and yield strategies running. The risk is that a deeper decline pushes past those buffers, triggering cascading liquidations and amplifying volatility.

Bitcoin, for its part, has been in a deleveraging phase for eight months, the report notes. The contrast between BTC's falling open interest and DeFi's stubborn leverage ratio suggests the two markets are on different cycles. DeFi's risk sits in the borrower base that has not yet been forced to exit.

The report does not name specific protocols or wallets with the highest exposure. It frames the risk as structural rather than imminent. A further 10-15% drop in major collateral assets would test the overcollateralization cushions that held during the first leg down. Borrowers who survived the April outflows may not survive a second wave without fresh capital.

For traders watching the space, the ratio to track is not the headline 38% but the rate of change in outstanding debt. If borrowing starts to fall faster than TVL, deleveraging is finally underway. If it stays flat while TVL continues to shrink, the ratio climbs higher and the liquidation risk grows.