Author: Zack Pokorny, Galaxy Digital Research Assistant; Source: Galaxy Digital; Compiler: Shaw, Golden Finance

Introduction

Decentralized finance (DeFi) lending experienced frequent vulnerability attacks in the first quarter. TheDrift protocol was attacked and $285 million was lost; $290 million was stolen from LayerZero and KelpDAO. The attacker deposited the stolen funds into the Aave protocol as collateral assets, which in turn had a chain impact on the platform. Among them, the theft of LayerZero and KelpDAO has a particularly profound impact on the lending market.

In the two weeks after this incident, the outflow of Aave protocol stablecoin stock exceeded US$5.5 billion, and the settlement of stablecoin loans reached US$3.1 billion; more than 25,400 Bitcoin assets were withdrawn, and the withdrawal amount of encapsulated Ethereum (WETH) exceeded 943,000.

There are also positive signals amid the violent market fluctuations. Several project teams have begun optimizing risk control systems. Throughout the development history of the industry, decentralized finance has a good foundation for self-regulation, and users will also force the platform to introduce protective measures. This is evidenced by the independent rectification of the industry after the FTX thunderstorm. However, relevant optimization cannot be achieved overnight, and some institutions still choose to maintain the original operating model.

Referring to past industry rules, this crisis may promote deep changes in the industry and ultimately build a more resilient decentralized financial ecosystem.

In terms of the centralized finance (CeFi) lending business, since the serial liquidation crisis and the decline in currency prices on October 10 last year, the scale of lending assets has declined for the first time, but the outstanding loan balance at the end of the first quarter is still higher than the level in the third quarter of 2025. Since the liquidation event, the prices of Bitcoin, Ethereum, and Solana have fallen by 34%, 48%, and 59% respectively.

This decline in scale is in line with Galaxy Research’s prediction. The industry is steadily deleveraging and has not completely collapsed. It also reflects that the risk control level of centralized lending institutions has improved. The overall use of funds for lending has tended to be stable. Unsecured, weakly secured lending and repeated pledges of mortgage assets have basically faded out of the mainstream business due to industry self-regulation, and such businesses were rarely carried out in the on-chain field. The quality of mortgage assets has been simultaneously optimized, and the ability of borrowers and lenders to withstand market fluctuations has been enhanced, which has significantly reduced the risk of passive deleveraging and capital losses.

At the same time, CeFi lenders still face many headwinds. First, the turmoil in the DeFi market will restrict the centralized lending business that relies on the on-chain market to serve customers; second, as currency prices continue to fall and the trend fluctuates, the market's willingness to lend will cool down.

Core points

• In the first quarter of 2026, the scale of crypto-asset-backed lending shrank by US$3.62 billion, a decrease of 5.1%, and the overall scale fell to US$67.42 billion, a 14.3% decline from the peak of US$78.67 billion in the third quarter of 2025.

• The dollar size of outstanding DeFi loans shrank for the second consecutive quarter in the first quarter, decreasing by US$4.53 billion, or 13.82%, to a balance of US$28.22 billion.

• Galaxy Research monitoring data shows that the scale of borrowing debt used to directly purchase digital asset treasury assets and supplement the treasury allocation strategy exceeds US$17.5 billion.

• Futures open interest, including perpetual contracts, fell 12.83% month-on-month, from $119.52 billion to $104.19 billion. However, positions have begun to rebound since hitting bottom in late February. As of May 1, the total has rebounded to US$24.04 billion, an increase of 26.62%.

Crypto-asset mortgage lending

The market landscape diagram below sorts out the leading new and old platforms in the field of centralized and decentralized crypto lending. From 2022 to 2023, affected by the collapse of cryptocurrency prices and the depletion of market liquidity, many leading centralized lending institutions closed down one after another. The relevant entities are marked with red warning signs in the picture.

CeFi

The following table compares the various centralized crypto lending institutions included in this market survey. Some companies provide investors with diversified business services. For example, Coinbase's core business is a trading platform, and it also provides credit to users through over-the-counter cryptocurrency lending and margin financing. This statistics only includes the scale of each institution’s crypto-asset mortgage loan business.

As of March 31, CeFi’s outstanding borrowings according to Galaxy Research reached $25.43 billion. This data shrank by 7.23% from the previous quarter, a decrease of US$1.98 billion; compared with the bear market low of US$6.8 billion in the fourth quarter of 2023, the scale has increased by US$18.59 billion, an increase of 271.69%. But the current balance is still down 30.47% from the historical peak of $36.58 billion in the first quarter of 2022. This is also the first time since the fourth quarter of 2023 that CeFi lending has declined quarter-on-quarter.

Most institutional lending volume shrank in the last quarter, and only a few platforms grew against the trend: Maple added $309.59 million, an increase of 16.97%; Milo platform increased $11.49 million, an increase of 9.36%; Coinbase increased $90.04 million, an increase of 6.65%; Nexo platform increased $11.18 million, a slight increase of 0.63%. It is worth noting that Tether’s lending business has experienced a quarter-on-quarter decline for the first time since the fourth quarter of 2021.

Tether is still the number one lending institution in the market, accounting for 62.25% of the centralized lending market, a slight increase of 8 basis points from the previous quarter. Maple’s market share was 8.39%, a month-on-month increase of 174 basis points; Nexo’s market share was 7.02%, a month-on-month increase of 55 basis points. The three leading institutions collectively control 77.66% of the market share, with the overall share rising by 229 basis points.

When comparing market shares, you need to pay attention to the business differences of each lending institution. Some platforms only provide specific types of loans, such as Bitcoin mortgages, altcoin mortgages, or fiat currency lending instead of stablecoin lending; the customer groups they serve also have different focuses, divided into institutional customers and individual retail investors; at the same time, business operations are limited by the scope of local supervision. The superposition of multiple factors has resulted in obvious differences in the expansion capabilities of different institutions.

The following table details the data sources of Galaxy Research’s centralized lending institutions and the basis for calculating the lending scale. Decentralized finance and centralized lending data on the chain can be obtained by querying public on-chain information. The data is transparent and easy to retrieve; however, it is more difficult to obtain pure centralized lending data. The reason is that various institutions have different statistical standards and information disclosure frequency standards for outstanding loans, which poses great obstacles to overall data collection.

Note: Data provided by third-party private lenders has not been formally verified by Galaxy Research.

CeFi and DeFi lending

In the first quarter, the dollar size of outstanding loans on DeFi lending platforms fell for the second consecutive quarter, shrinking by US$4.53 billion, a decrease of 13.82%, and the balance fell to US$28.22 billion. As of the end of the quarter, the total balance of crypto-asset mortgage loans on DeFi and CeFi lending platforms totaled US$53.65 billion, a decrease of US$6.51 billion or 10.82% from the previous quarter. The decline in scale was mainly caused by the contraction of on-chain lending.

Note: There may be duplicate statistics on the total amount of CeFi and DeFi loans. Some centralized institutions use decentralized platforms to lend to off-chain customers. For example, institutions mortgage idle Bitcoins, lend US dollar stablecoins on the chain, and then on-lend to offline borrowers. In this case, the on-chain loan will not only be included in the decentralized outstanding loan data, but will also be recorded as the institution's loan arrears to the customer. Due to imperfect information disclosure and difficulty in tracing the source of funds on the chain, it is difficult to eliminate such repeated statistical items.

Since the decline in outstanding loans of DeFi lending platforms was higher than that of CeFi lending platforms in this quarter, the size gap between the two further narrowed in the first quarter. At the end of the first quarter of 2026, DeFi lending accounted for 52.6%, down 183 basis points from 54.3% at the end of the fourth quarter of 2025.

As the third category, the supply of crypto-asset collateral in collateralized debt position stablecoins increased by $2.89 billion month-on-month, an increase of 26.54%. Sky platform’s USDS and DAI are the core drivers of the growth of this type of stablecoin, with a total increase of US$2.88 billion in the first quarter. The total scale of CeFi lending and the supply of stablecoins in collateralized debt positions also have the risk of repeated statistics. Some centralized institutions will mint such stablecoins by pledging crypto assets to raise funds to issue off-chain loans.

In the first quarter of 2026, crypto-asset-backed lending shrank by $3.62 billion, or 5.1%, to a total of $67.42 billion, down 14.3% from the peak of $78.67 billion in the third quarter of 2025.

At the end of the first quarter of 2026, the market share distribution of crypto asset mortgage lending is as follows: DeFi lending platforms accounted for 41.85%, a decrease of 424 basis points from the fourth quarter of 2025; CeFi lending institutions accounted for 37.72%, a decrease of 87 basis points from the previous quarter; the size of crypto-collateralized assets of stablecoins in collateralized debt positions accounted for 20.43%, an increase of 511 basis points from the previous quarter. Combining the statistics of DeFi lending platforms and collateralized debt position stablecoins, the overall market share of on-chain lending reached 62.28%, an increase of 87 basis points from the previous quarter.

Supplementary analysis of DeFi lending

The size of outstanding loans on DeFi lending platforms has shrunk significantly since hitting a historical peak of $47.13 billion on September 19, 2025. As of May 1, 2026, the balance of on-chain lending dropped to US$23.29 billion, a cumulative decrease of US$23.84 billion, a decrease of 50.58%. Outstanding loans on the Ethereum chain, which hit a high of $37.52 billion in the fall, have fallen back to $19.58 billion.

The current retracement of DeFi lending has exceeded the decline caused by the tariff crisis in the spring of 2025, and has fallen back to the same period in March and April of 2024.

Stablecoin

The weighted average lending rate of stablecoins declined this quarter, falling by a cumulative 92 basis points from January 1 to March 31, 2026. However, after entering the end of the April quarter, affected by the tight liquidity caused by the rsETH vulnerability attack, the overall stablecoin lending rate soared to 7.9%.

This interest rate comprehensively measures the borrowing cost of the lending agreement and the stable currency minting fee of the mortgage debt position, and is calculated based on the outstanding loan scale as the weight.

The following is a breakdown of the two types of stablecoin borrowing costs: lending platform borrowing interest rates, and rates for pledged crypto assets to mint mortgage debt position stablecoins. The trends of the two types of interest rates are highly convergent, but the fluctuations in the stablecoin minting rate for collateralized debt positions are usually smaller. This rate is set manually on a regular basis and does not change simultaneously with the market. For more than a year and a half, both interest rates have been set at the lower limit of the U.S. federal funds rate.

During the rsETH vulnerability attack, the trends of the two types of interest rates diverged: the casting rate was basically the same, while the lending platform interest rate surged sharply.

The USDC OTC benchmark interest rate remained unchanged at 3.5% this quarter. As the rsETH vulnerability incident unfolded, the USDC interest rate on the chain soared sharply, and the spread between the on-chain interest rate and the off-site interest rate hit a new high since March 2024.

The chart below shows the similar interest rate data for USDT lending. In line with the trend of U.S. dollar stablecoin over-the-counter interest rates, USDT interest rates remained stable this quarter. Affected by the rsETH vulnerability incident, the spread between the USDT on-chain and off-chain interest rates hit the largest value since March 2024.

Bitcoin

The figure below shows the weighted lending rate of encapsulated Bitcoin (WBTC) in lending applications on multiple platforms and multiple public chains. Encapsulated Bitcoins are mainly used as collateral assets on the chain, and the demand for borrowing is low, so the cost of borrowing on the chain is usually low. Compared with stablecoins, the lending interest rate on the Bitcoin chain is stable, and the frequency of user lending and return operations is lower. The Bitcoin on-chain lending rate rose from 0.22% at the end of the third quarter to 0.44% at the end of the fourth quarter.

The historical price difference between the Bitcoin on-chain and over-the-counter lending rates continued to exist in the third quarter, but the over-the-counter Bitcoin lending rate has fallen significantly. The demand for Bitcoin lending in the OTC market mainly comes from two aspects:The first is the transaction demand for shorting Bitcoin, and the second is using Bitcoin as collateral to borrow stablecoin and legal currency funds. Short selling demand is not common in the on-chain lending market, which also results in a difference in interest rates between the two.

Bitcoin OTC interest rates remained stable at 1% this quarter.

ETH and StETH

The figure below shows the weighted lending interest rates of Ethereum and Lido protocol pledge token stETH on multiple lending applications and different public chains.

Historically, the lending interest rate of Ethereum has been higher than that of stETH, and the demand for lending in the former market is stronger. Investors frequently borrow Ethereum and cycle through leverage to gain annualized returns from staking on the Ethereum network; users obtain stETH after staking Ethereum through Lido, and then use the token as a mortgage asset. Under normal circumstances, the average Ethereum lending interest rate fluctuates around the annualized rate of return on network pledges within a range of 50 basis points. Once the borrowing cost exceeds the pledge yield, the arbitrage strategy becomes unprofitable, so the annualized borrowing rate is rarely higher than the pledge yield for a long time.

Similar to encapsulated Bitcoin, stETH mainly serves as collateral, actual borrowing demand is sluggish, and borrowing costs are generally low.

Users can borrow Ethereum at low or even negative net interest rates by using liquid pledge tokens and liquid re-pledge tokens with both income attributes as collateral. Relying on low capital costs, investors carry out circular arbitrage: repeatedly pledge two types of tokens to lend out unpledged Ethereum, obtain new pledged tokens after completing the pledge, and then use this as a guarantee to borrow more Ethereum, thereby enlarging the annualized income exposure of Ethereum pledge. The premise for this strategy to be effective is that the borrowing cost of Ethereum is lower than the income level of pledged tokens. Except for a few special stages, this trading model mostly operates smoothly.

Affected by the rsETH vulnerability attack in April, market liquidity tightened and the cost of borrowing encapsulated Ethereum soared sharply. This arbitrage strategy subsequently lost its profit margin.

Ethereum OTC interest rate

Similar to Bitcoin, in the past, the cost of borrowing Ethereum through on-chain lending platforms was always lower than over-the-counter borrowing. There are two major reasons behind this: First, there is short-selling demand in the OTC market, and this type of lending demand is rare in on-chain scenarios. Second, the annualized rate of return on Ethereum pledges has become the bottom line for over-the-counter lending rates. Fund lenders will not be willing to deposit and lend assets over the counter at an interest rate lower than the pledge income. Looking back at the on-chain market, the annualized rate of return on Ethereum pledges is often the upper limit of the lending rate.

Aave protocol’s market reaction to the rsETH and LayerZero attacks

The rsETH attack that broke out in mid-April caused the strongest impact in history on the Aave lending market and even the entire decentralized finance field. Affected by the incident, various spot and synthetic asset markets built on stablecoins and encapsulated Ethereum have come to a standstill.

After the attack was exposed, users concentrated on withdrawing their assets, and the fund utilization rate once approached the full value, and subsequent withdrawal operations were restricted.

The crisis triggered large-scale capital outflows and liquidity depletion, and user asset redemptions were blocked. The following content is excerpted from a research report issued by Galaxy research based on its self-developed data model analysis of the Aave market.

Stablecoin

In the days after the incident, the stock of stablecoins in the Aave V3 core market continued to fall, eventually stabilizing at around 4.5 billion. On April 24, about a week after the incident, the size of stablecoin deposits no longer fluctuated.

The trend of stablecoin lending scale is basically the same. The data gradually fell back in the first week after the incident, and finally stabilized at around 4 billion.

The chart below statistics changes in stablecoin fund utilization rates from April 19th to May 3rd. The utilization rate had not yet reached 100% within the first six hours of the incident. Subsequently, the utilization rates of many currencies increased one after another. Calculated based on the moving average of 100 blocks, the time it takes for each currency to break through 99% utilization is as follows:

• USDT: 2513 blocks (8 hours and 24 minutes)

• USDC: 3536 blocks (11 hours and 49 minutes)

• PYUSD: 4005 blocks (13 hours and 23 minutes)

• USDe: 5708 blocks (19 hours 04 minutes)

• DAI: 12758 blocks (42 hours and 39 minutes)

• RLUSD: The utilization rate has never exceeded 99% during the observation period

For comparison, it only took 678 blocks (2 hours and 16 minutes) for encapsulated Ethereum (WETH) to reach 99% utilization. Multiple stablecoins have maintained high utilization rates for a long time:

• USDT 99% or above utilization period: 135.19 hours

• USDC 99% or above utilization duration: 97.82 hours

• USDe 99% or above utilization time: 70.48 hours

• Duration of DAI utilization above 99%: 15.82 hours

• PYUSD 99% or above utilization time: 2.77 hours

There are differences in the length of stay of various assets at high levels. For Ethereum encapsulation, based on the average of 100 blocks, the utilization rate is over 99%, which lasts for 12.7 days.

WETH

The fund utilization rate of Encapsulated Ethereum (WETH) has been at a high level for a long time, approaching the 100% upper limit, with an average value of about 99.6%. As of the end of the statistical period on May 3, the utilization rate dropped slightly to 98.47%.

Overall liquidity continues to be tight. Even if the incident handling situation gradually improves, the utilization rate has not dropped significantly to the pre-crisis level, indicating that the supply of funds is still difficult to match the lending demand for most of the period.

In terms of asset size, both lenders and borrowers in the market have reduced leverage, but the decline in capital supply has far exceeded the scale of lending. The amount of deposits in packaged Ethereum dropped from approximately 3.01 million to 2.06 million, a decrease of 31.4%; the amount of loans dropped from approximately 2.67 million to 2.03 million, a decrease of 23.7%.

The balance between supply and demand continues to be small, which also means that even if the scale of existing deposits and loans drops significantly, the capital utilization rate remains high.

Corporate debt strategy

Currently, the amount of outstanding debt used to purchase directly or supplement the DAT treasury strategy exceeds US$17.5 billion. Limited by the statistical caliber of Bloomberg Strategy preferred stocks, there are deviations in the time series growth data of STRC outstanding shares issued by the company, but the total amount of debt issuance can truly reflect the actual scale of liabilities.

The following timeline sorts out the earliest maturity, redemption and putback dates for debt issued by the DAT treasury starting from January 2026. Most of this debt will mature between September 2027 and September 2028 at the earliest.

The following details the actual quarterly interest payable on debt issued by DAT. Strategy's quarterly interest increased significantly sequentially, primarily due to new STRC bond issuances. Please note that STRC dividends may only be paid out of legal funds when declared by the Board of Directors, but any unpaid dividends accumulate and must be paid before dividends can be distributed to subordinated securities. As a result, payments of STRC dividends may be uneven and at irregular intervals.

Crypto-related outstanding debt, including DAT treasury liabilities, fell 3.77% month-on-month. After hitting a historical peak in the third quarter of 2025, the total amount of crypto-chain and off-chain debt fell back to $85.1 billion at the end of the first quarter, falling for two consecutive quarters.

Futures Market

Futures open positions, including perpetual contracts, fell 12.83% month-on-month, from $119.52 billion to $104.19 billion. Despite the overall pullback, open interest has rebounded from late February lows and has since grown by a cumulative $24.04 billion, or 26.62%.

It should be noted that the value of futures open positions is not equivalent to the actual leverage scale. Partial positions can be hedged with long spot positions, allowing traders to achieve delta-neutral exposure to the underlying assets. The overall market leverage cannot be directly measured based on position data alone.

As of March 31, the open positions of CME perpetual and non-perpetual contracts accounted for 10.71%, a decrease of 231 basis points from the previous month. Between the end of the quarter and May 1, the proportion rose slightly to 11.01%, which is still nearly halved from the peak of 21.22% in December 2024.

This quarter, the market share of Hyperliquid and DeFi dropped by 125 basis points and 65 basis points respectively. As of March 31, Hyperliquid’s market share was 5.03%, and the overall DeFi market share was 8.95%.

Conclusion

In the first quarter, on-chain lending was deeply troubled by two major hacker attacks worth tens of millions of dollars, falling currency prices and capital outflows. The total stolen funds in the Drift and LayerZero/KelpDAO attacks exceeded US$575 million, and the latter triggered a large-scale withdrawal of users from Aave and various lending platforms.

The loan scale of the CeFi sector has shrunk for the first time. However, against the background of the currency prices of Bitcoin, Ethereum, and Solana falling by 34%, 48%, and 59% respectively, the loan volume is still higher than the level in the third quarter of 2025. This resilience is due to the upgrade of collateral review standards and the increasingly standardized risk control operations of lending institutions. The current market is gradually reducing leverage, which is a healthy adjustment in the industry and is not a systemic collapse.

Looking forward to the market outlook, the industry has been able to complete self-repair after experiencing major shocks in the past, so we can maintain a cautious and optimistic attitude. However, it will still take time to improve the risk control system, and some institutions may also resist relevant reforms. Based on past rules, this round of turmoil may ultimately improve the risk resistance of DeFi and even the entire industry, but the recovery process is bound to have twists and turns.