tl;dr
A Galaxy Digital report highlights rising systemic risk in crypto markets due to increasing leverage interdependencies among centralized finance (CeFi), decentralized finance (DeFi), and crypto corporate treasuries. As of March 31, over $39 billion in crypto-collateralized debt exists across these s...
Interconnected leverage between centralized finance (CeFi), decentralized finance (DeFi), and crypto corporate treasuries is escalating systemic risk within the crypto lending market.
As of March 31, over $39 billion in crypto-collateralized debt is outstanding across these sectors, with DeFi protocols holding 45.3%, centralized lenders 34.6%, and collateralized stablecoins 20.1%. Borrowing figures are inflated due to overlapping exposures, particularly because centralized desks often raise liquidity on DeFi platforms but lend off-chain, duplicating debt records.
Automated liquidations on DeFi can trigger cascading effects on centralized exchanges, amplifying price volatility and inducing further sell-offs. These forced sales predominantly affect highly utilized assets such as Bitcoin (BTC), Ethereum (ETH), and staked Ethereum (stETH), intensifying market swings across venues.
Corporate crypto treasuries have introduced additional complexity by issuing at least $12.7 billion in convertible and zero-coupon debt to finance crypto holdings, creating refinancing risks concentrated in the 2027–2028 timeframe. Companies like Strategy, Riot Platforms, and Twenty One Capital are significant borrowers, with Strategy alone owing $8.2 billion and paying $17.5 million quarterly in interest.
Short-term borrowing costs for crypto firms closely follow DeFi interest rates, with OTC stablecoin loans typically priced 2% to 4% above these levels. This linkage tightly couples private credit markets to on-chain liquidity conditions, accelerating the transmission of financial stress throughout the crypto ecosystem.
The growing complexity, opacity, and lack of standardized disclosures in crypto credit markets hinder regulators and market participants from fully assessing systemic exposure, leaving the full extent of risk ambiguous. While credit channel diversification expands borrowing capacity, it simultaneously strengthens shock transmission across interconnected CeFi, DeFi, and treasury systems, raising warnings for market stability.