Galaxy Digital: Crypto Market Leverage Surges, Heightening Market Vulnerability
BlockBeats News, August 18th. According to Coindesk, a Galaxy Research report shows that the Q2 crypto market lending scale has grown by 27%, reaching $531 billion, the highest level since early 2022, mainly driven by DeFi lending demand and a rebound in risk appetite. Bitcoin retreated from $124,000 to $118,000, triggering over $1 billion in cryptocurrency derivatives market liquidations, the largest scale of long liquidation since early August. Analysts believe this is more like a healthy profit-taking rather than the start of a reversal, but it also highlights the market's vulnerability when leverage quickly accumulates.
Galaxy analysts pointed out that pressure points have begun to emerge. In July, Aave saw a large withdrawal, driving up the ETH borrowing rate above the Ethereum staking yield, breaking the "carry trade" trading logic—using staked ETH as collateral to borrow more ETH. This deleveraging process triggered a cascade of liquidations of collateral positions, setting a 13-day record for the Ethereum 2.0 exit queue.
Galaxy stated that since July, the off-chain market borrowing cost of USDC has been continuously rising, while the on-chain borrowing rate has remained stable. The interest rate spread between the two has widened to the highest level since the end of 2024. This deviation implies that the off-chain demand for the dollar has exceeded on-chain liquidity, which could exacerbate volatility if the market environment further tightens. With the surge in lending scale, concentration of lending power, DeFi liquidity crunch, and the widening gap between the on-chain and off-chain dollar markets, the system is revealing more pressure points. Thursday's $1 billion liquidation serves as a reminder that the impact of leverage is two-sided.
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