Venue rotation reshapes leverage and liquidity transmission
The crypto collateralized lending sector declined to $39.07 billion in open borrows during Q1 2025, down 4.88% quarter over quarter. By quarter-end, DeFi represented 45.31% of collateralized lending while CeFi reached 34.57%, showing meaningful share capture by centralized venues during the period. DeFi’s dominance over combined on-chain venues fell to 56.72% from 64.48% at the end of Q4 2024, reinforcing that borrowers were re-optimizing venue selection. At the same time, CDP stablecoins rose by $1.6 billion (25.56%), indicating that on-chain minting leverage persisted even as DeFi lending balances contracted.
The rotation implies a recalibration of risk appetite and execution preferences across borrower cohorts. Centralized lenders are positioned as liquidity backstops during drawdowns by enabling cash access without forced asset sales, while DeFi maintains programmatic transparency that can reduce counterparty risk. Tighter spreads between OTC and on-chain borrowing costs suggest increasing benchmarking between ecosystems and the rise of hybrid models. This convergence points to a leverage stack that blends CeFi predictability with DeFi composability rather than a clean winner-takes-all dynamic.
DeFi leverage is fading.
AAVE borrowing is down ~70% since August as risk appetite fell with prices.
But on @Nexo, borrowing rebounded +155% WoW during the drawdown.
Users are choosing to borrow against collateral, not sell. pic.twitter.com/paqjLMeq5L
— CryptoQuant.com (@cryptoquant_com) December 24, 2025
On-chain weighted average stablecoin borrow rates fell materially over the period, dropping from 11.59% on January 1, 2025 to 5.00% by May 26, a 56.86% decline on a seven-day moving average that includes CDP mint fees. The rate compression is attributed to lower utilization as asset prices struggled and on-chain activity cooled, alongside interest-rate parameter updates across lending applications. A Coinbase Institutional Market Intelligence note highlighted stablecoin borrowing as a leverage indicator, stating: “Borrowing demand particularly in stablecoin markets may be an indicator of leverage in crypto markets.” This framing treats stablecoin borrow demand as a real-time proxy for risk-taking and balance-sheet expansion.
Despite the Q1 contraction, the broader crypto lending market recovered later in 2025, reaching an all-time high of $73.59 billion in Q3 2025, driven largely by DeFi expansion to $40.99 billion (+54.84% from troughs). This rebound suggests leverage demand re-accelerated as market structure improved and DeFi capacity scaled. Innovations such as rates trading, managed vaults, and new collateral types broadened leverage sources, while a concentrated group of centralized lenders expanded activity and institutional participation rose. Renewed leverage to bitcoin treasury firms is increasing debt-funded accumulation and futures markets showing higher open interest, reinforcing the return of risk appetite through multiple channels.
The quarter’s figures describe a more interconnected borrowing ecosystem with competitive pricing and shifting venue preference. That competitive leverage landscape has direct implications for volatility, selling pressure, and circulating stablecoin liquidity as borrowers move between CeFi, DeFi, and CDP-style minting pathways.