The decentralized finance sector has recorded a sharp jump in the on-chain leverage ratio, which has returned to levels seen five years ago. Binance Research analysts published data confirming this trend. On the one hand, such changes have traditionally signaled rising systemic risks.

On the other hand, the current dynamics are driven by a specific factor — a rapid reduction in the volume of locked assets, rather than growth in demand for borrowed funds.

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Why DeFi leverage has returned to 2021 levels

The ratio clearly demonstrates the relationship between borrowed capital and margin positions to the total value of locked assets. At present, this indicator has risen to 38%, driven by a widespread drop in collateral volumes.

The decline in figures began in the evening, when the sector faced a series of large-scale hacker attacks. In total, according to industry media, attackers withdrew colossal sums from various projects.

The most serious blow was suffered by two major platforms:

• The Kelp DAO protocol lost about $292 million as a result of a vulnerability.
• The Drift Protocol project was also subjected to a serious exploit by hackers.

Following these incidents, investors began to massively withdraw capital, fearing for the safety of their savings. Accordingly, the total value of collateral fell sharply to minimum blockchain levels.

"Exploits in DeFi in April triggered an outflow of TVL of approximately $13 billion," the report states.

Ultimately, the decline in proportions arose due to the drop in the volume of the collateral pool. Traders did not take out more loans, but the overall asset base shrank significantly.

Source: BeInCrypto