DeFi Leverage Ratio Rises to 2021 Levels Amid TVL Decline, Binance Research Says
On-chain leverage ratio in DeFi hit 2021 levels due to falling total value locked, not rising debt, per Binance Research.
The on-chain leverage ratio across decentralized finance (DeFi) protocols has climbed to levels last seen in 2021, according to a report by Binance Research. However, the increase is primarily attributed to a decline in total value locked (TVL) rather than a surge in borrowing demand.
The leverage ratio, which measures the amount of borrowed funds relative to collateral, often signals market risk. Binance Research noted that the metric rose as TVL dropped, partly due to recent exploits affecting several DeFi platforms.
The report highlights that while elevated leverage can indicate potential liquidation cascades, the current rise is more a reflection of reduced TVL than increased speculative activity. Borrowing volumes remain relatively subdued compared to the 2021 peak.
- Binance Research observed leverage ratios approaching 2021 highs.
- TVL decline, partly from exploits, drove the metric higher.
- Borrowing demand has not surged, suggesting caution in interpreting the data.
The findings provide context for market participants monitoring DeFi risk. As TVL continues to fluctuate, the leverage ratio may remain elevated without signaling a repeat of 2021's aggressive debt accumulation.