Foresight News reports that Galaxy Research pointed out in its latest report that the size of crypto market loans in the second quarter increased by 27% quarter-on-quarter, reaching $53.1 billion, a new high since early 2022, mainly driven by increased demand for DeFi lending and a rebound in risk appetite. Recently, Bitcoin fell from $124,000 to $118,000, triggering over $1 billion in long liquidations, the largest scale since August. Analysts believe this is more like a profit-taking event, but it also highlights the market vulnerability brought about by rapid accumulation of leverage.
In July, Aave experienced large withdrawals, pushing ETH lending rates above staking yields, breaking the 'circular arbitrage' logic, and leading to Ethereum exit queues setting a 13-day record. At the same time, the borrowing cost of USDC in the over-the-counter market has been rising continuously since July, while on-chain rates have remained stable, with the spread between the two expanding to the highest level since the end of 2024, indicating that off-chain dollar demand exceeds on-chain liquidity. Galaxy warns that amid surging loan sizes, concentrated borrowing, and tightening liquidity, systemic pressure is increasing, and the recent $1 billion liquidation event serves as a reminder that market leverage risks have a two-way effect.
