Crypto leverage surged to an all-time high in the third quarter, reaching $73.6 billion in total crypto-collateralized debt, according to a new report from Galaxy Digital Research. While leverage levels are now the highest in industry history, analysts say the underlying market structure is more resilient, transparent and better collateralized than in previous cycles.What to KnowOnchain lending now accounts for 66.9% of all crypto-collateralized borrowing — a record high.DeFi loans hit $41 billion, boosted by incentives, new collateral types and emerging chains like Plasma.Centralized lenders grew outstanding loans 37% to $24.4 billion, with far stricter collateral standards.Tether controls nearly 60% of tracked centralized (CeFi) lending.The $19B liquidation cascade on Oct. 10 was the largest ever, but Galaxy says it reflected exchange risk controls, not systemic fragility.Onchain Lending Surges, Driving Record $73.6B in Crypto-Collateralized DebtGalaxy Digital reports that Q3 saw the most levered quarter on record for crypto markets. Total crypto-collateralized debt rose to $73.6 billion, surpassing previous cycle highs from 2021–22.The key driver: onchain lending, which now dominates the market at 66.9%, up from 48.6% at the prior peak.The shift marks a structural transformation in how leverage is created and managed — moving away from opaque, centralized credit and toward transparent, overcollateralized smart-contract systems.DeFi Lending Hits $41B as Incentives, New Collateral Types Fuel GrowthDeFi lending grew 55% in Q3 to reach an all-time high of $41 billion, driven by:points-driven user incentivesnew collateral such as Pendle Principal Tokensthe rapid rise of emerging chains like Plasmamajor lending apps deploying across multichain ecosystemsAccording to Galaxy, lending dApps now control more than 80% of the onchain credit market, while CDP-backed stablecoins have shrunk to just 16% of activity.New Plasma-based deployments, including Aave and Fluid, generated more than $3 billion in borrows within just five weeks of launch.Centralized Lenders Rebound, but Credibility Depends on CollateralizationCentralized finance (CeFi) lenders posted a 37% rise in outstanding loans, reaching $24.4 billion — still about one-third below the 2022 peak.But the composition of CeFi credit has dramatically changed:Uncollateralized loans are essentially goneSurvivors from the last cycle now use full-collateral or overcollateralized modelsMany CeFi firms are preparing for institutional fundraising or public listingsTether remains the dominant player, controlling nearly 60% of all tracked CeFi lending.$19B Liquidation Cascade Was Not Systemic, Galaxy SaysOn Oct. 10, crypto markets witnessed a $19 billion liquidation cascade, the largest single-day wipeout in futures market history.However, Galaxy says the event did not reflect structural credit weakness.Instead, the cascade was driven by:exchange auto-deleveragingthin order books during high volatilitymechanical liquidation algorithms triggering sequential unwindsIn other words: risk systems behaved as designed, preventing contagion rather than amplifying it.Corporate Digital-Asset Treasuries Continue LeveragingGalaxy also identified a growing reliance on leverage among corporate digital-asset treasury (DAT) strategies.DAT-linked debt now totals more than $12 billion, pushing combined industry borrowing — including DAT issuance — to a record $86.3 billion.These strategies rely on overcollateralized leverage to acquire and hold crypto for treasury management, cashflow generation, and balance-sheet optimization.Galaxy: Leverage Rising, but on Healthier FootingDespite record leverage, Galaxy emphasizes that the market today is structurally healthier than in past cycles. Key improvements include:higher collateral ratiosgreater onchain transparencythe decline of unbacked lendingmultichain credit dispersionregulated custodial oversight in CeFiThis stands in contrast to the 2021–22 boom, when opaque credit, unsecured corporate loans, and cross-platform rehypothecation contributed to the severe credit unwind.Galaxy’s conclusion: Leverage is back — but this time, it’s better collateralized, more transparent, and less systemically risky.
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