Crypto Debt Soars to $53 Billion in Q2 2025 as Onchain Loans Surge 42% to Record $26.5 Billion, Galaxy Warns of Rising Risks

The cryptocurrency market has seen an unprecedented surge in leverage, with total crypto-collateralized debt reaching $53 billion in the second quarter of 2025, according to a recent report by Galaxy Digital. This marks a 27.44% increase from the previous quarter and represents the highest level of crypto debt since the peak of Q4 2021. The report highlights a 42% surge in onchain loans, which hit an all-time high of $26.5 billion, driven by renewed optimism and rising asset prices following market volatility in early April.

The growth in onchain borrowing, particularly in decentralized finance (DeFi) protocols, has outpaced centralized finance (CeFi) lending, with DeFi loans accounting for 59.83% of the total crypto-collateralized lending market. Galaxy Research tracked $17.78 billion in open CeFi borrows, reflecting a 14.66% quarter-over-quarter increase. Major CeFi lenders like Tether, Nexo, and Galaxy itself dominate the market, controlling 74.26% of CeFi lending, with Tether alone holding a 57.02% share.

The report also notes the rise of new DeFi lending platforms, including Fraxlend, Curve Llamalend, and Hyperlend, alongside expanded chain coverage for existing apps like Kamino and Dolomite. This expansion has fueled the rapid growth of on-chain borrowing, with DeFi loans growing by $7.84 billion in Q2. However, the report cautions that the potential for double-counting CeFi and DeFi figures exists, as some CeFi entities may use DeFi protocols to facilitate off-chain lending.

Galaxy Digital warns of increasing risks tied to this leverage boom. The report points to the crypto market’s sensitivity to price fluctuations, which could trigger liquidations in over-leveraged positions, as seen in the $1.7 billion market wipeout in December 2024, the largest since April 2021. Analysts highlight that rising open interest in futures markets, which reached $132.6 billion, and overheated funding rates signal heightened speculative activity that could amplify volatility.

Digital asset treasury companies (DATCOs), particularly those focused on Ethereum, remain a key driver of borrowing, though their reliance on non-debt strategies has kept their outstanding debt stable. Notably, $3.65 billion in DATCO debt is due in June 2028, posing a potential future risk.

“While the expansion of leverage reflects growing confidence in crypto markets, it also introduces systemic risks,” said a Galaxy Research spokesperson. “Increased competition and borrowing activity could stabilize costs, but the market’s reflexivity to price movements demands caution.”