DeFi leverage returns to 2021 levels after April exploits

On-chain decentralized finance leverage rose to about 38%, reaching levels last seen in 2021, after a series of security exploits in April sharply reduced total value locked (TVL). Binance Research reported the leverage figure.

The on-chain leverage ratio measures borrowed positions relative to the capital locked in DeFi protocols. The ratio increased mainly because TVL fell, not because borrowing spiked, Binance Research reported.

Hackers took about $606 million in April, and on-chain analysis shows roughly $13 billion left DeFi platforms that month. In a post, Binance Research wrote, “April’s DeFi exploits triggered ~US$13B in TVL outflows.”

Most losses were concentrated in a few incidents. The Kelp DAO exploit accounted for about $292 million in reported losses, and other breaches, including an attack on Drift Protocol, contributed to the outflows. Users withdrew assets across multiple blockchain ecosystems.

Total borrowing levels have not risen to match the higher leverage ratio, according to on-chain metrics. With a smaller pool of collateral, the concentration of open leveraged positions carries more weight in potential liquidations.

Binance Research reported that meaningful deleveraging had not yet occurred and that elevated leverage relative to a reduced capital base may increase the risk of position unwinds if asset prices fall.

A return of capital to DeFi would lower the leverage ratio even without changes to individual positions, while widespread deleveraging would reduce outstanding borrowings. Leverage reached similar levels in 2021, but borrowing and TVL dynamics in that period differed from the current episode.