MIAMI, FLORIDA - JULY 16: The robo-crypto bull statue is seen on the campus of Miami Dade College's Wolfson campus on July 16, 2025, in Miami, Florida. Bitcoin surged to a new all-time high, reaching $122,000 this week, as Republicans have nicknamed the week “crypto week" and are set to take up legislation aimed at digital currency. (Photo by Joe Raedle/Getty Images) Getty Images Digital asset lending markets have roared back to life in 2025, with loan volumes more than doubling since Q1 2024 to reach $44.25 billion. But dig deeper into Galaxy Digital’s latest State of Crypto Leverage report, and the real number may be closer to $62 billion—surpassing the 2021 peak as spot markets have. This renaissance has been driven by growth in both centralized finance (CeFi) providers, and programmatic lending providers, also known as decentralized finance protocols or DeFi. Historically, it has been challenging to aggregate industry-wide data for digital asset lending markets that includes both CeFi and DeFi data. While DeFi protocols are typically open source and real time data can be obtained on-chain, CeFi providers are fragmented by geography, asset coverage, and activity, which makes it difficult to obtain the data, streamline it, and publish it. Genesis Capital, once the industry’s largest institutional crypto lender before its 2023 bankruptcy, used to publish quarterly reports that the industry used to rely on as a benchmark for CeFi activity. However, since Genesis’ demise, there had not been any aggregate industry reports until Galaxy Digital started aggregating data from both DeFi and CeFi providers, and published their first “State of Crypto Leverage” quarterly report earlier this year. Galaxy’s most recent Q2 2025 report was released earlier this week, and data from the report indicates that: Lending activity in the digital asset space is still below the peak set in 2021, and DeFi providers have a larger market share of lending activity than CeFi providers While the data may suggest this at first glance, it’s important to go under the hood to better understand what this all means. Is the market smaller than at the 2021 peak? First, let’s focus on the evidence that the aggregate lending activity in crypto markets is still below its peak of 2021. While the report aggregates data from CeFi and DeFi in order to reach in aggregate, it treats debt obtained by Digital Asset Treasury Acquisition Companies or “DATCOs” (companies that use corporate debt to acquire bitcoin) as separate, and does not include them in the aggregate numbers. Since this is debt being used to acquire more digital assets, it would make sense to add this data back into the totals to get a better appreciation of lending activity related to digital assets. As per the report, total DATCO debt as of Q2 2025 stood at $12.74 billion. MORE FOR YOU Furthermore, with the advent of Bitcoin ETFs and DATCOs, many bitcoin investors have rolled their spot bitcoin positions into ETF products and DATCO shares. These investors have also accessed margin lending from their ETFs and shares, which are akin to digital-asset backed loans, and would have been included in CeFi volumes in the 2021 era. To gain a better appreciation of that activity, we can estimate the amount of margin debt being used against these products using historical averages, and add back those estimates to paint a more complete picture. Accounting for margin eligibility and collateral requirements, and considering the average share float that is used for margin loans across the market, we can estimate that approximately $3 billion - $6 billion in loans issued against ETFs like IBIT and DATCO shares like MSTR are outstanding. Three reasons Galaxy’s report underestimates CeFi volumes: DATCO debt: $12.74 billion in outstanding loans not counted in aggregate. ETF + DATCO margin loans: an estimated $3 billion – $6 billion are not considered. CeFi aggregation gaps: Some centralized lenders don’t share their data, leaving volumes out of the picture. If we add back the DATCO loan figures ($12.74 billion) and the ETF and DATCO margin loans estimates ($4.5 billion) to the total CeFi volumes, we go from $17.78 billion to $35.02 billion. This would be a new all-time high for CeFi volumes, surpassing the previous peak of $34.8 billion in Q1 2021. Under these assumptions, we’d have the CeFi totals of $35.02 billion surpass the DeFi totals of $26.47 billion. Moreover, that would put the total aggregate size of the digital asset lending market at $61.76 billion, eclipsing the previous all-time high reached during Q1 2021 of $54.85 billion. For context, U.S. equity margin debt — the amount investors borrow using stocks as collateral— is currently around $1.02 Trillion on ~$64 Trillion in assets. This represents about 1.6% of the total value, and accounting for an estimated 2:1 overcollateralization, this would indicate that around 3-4% of equities are being used as collateral for margin. If we apply the same ratios to the crypto market cap of ~$4 Trillion, we’d expect to see ~$80 Billion in loans. Crypto leverage is still smaller by this metric, but growing fast enough that it’s beginning to resemble traditional structured lending markets. Does DeFi really have higher volumes than CeFi? The report indicates that DeFi lending volume as at Q2 2025 was approximately $26.47 billion, which is 47% higher than it was during the 2021 peak. If that’s the case, we should expect to see more end users interacting with the protocols. But here’s where the data gets puzzling. As per the report “Ethereum maintains a dominance of 78.22% over all DeFi lending supplies as of July 31, 2025.”. With that in mind, we should expect to see a much higher number of active Ethereum addresses relative to the peak of 2021. When we look at the number of active addresses for Ethereum, however, we can see that currently, the number of active ETH addresses in a 30-day period is 6,649,423. At the previous peak of DeFi borrowing activity on May 1st, 2021, there were 9,139,454 active addresses in a 30-day period. In other words, the number of ETH active addresses over a 30-day period today is 27% lower than it was during the 2021 peak. This suggests that the growth in DeFi lending volumes does not seem to be coming from more active users. There are fewer active addresses today on the Ethereum blockchain than in 2021, but the dollar value of the assets they are borrowing and lending is higher. Moreover, there are unique incentive dynamics at play in DeFi that make it challenging to parse out what borrowing and lending activity is genuine. Some DeFi protocols incentivize their use by giving additional rewards to their users, which can result in artificial rates that can drive unusual behaviour. As an example, at the time of writing, this particular DeFi protocol shows that users can borrow USDC stablecoins using wrapped bitcoin as collateral for a variable rate of 7.46% APR. That same user can deposit the same USDC stablecoins on the same liquidity pool that funds those loans and earn an APY of 9.40%. In other words, users can earn +1.94% by borrowing stablecoins and depositing them back in the same liquidity pool they came from. This type of incentive-farming activity is widely known as “yield farming”, a process whereby users loop their assets around several protocols to extract the rewards, not intending to use the loan proceeds for real world purposes. Moreover, CeFi volumes have historically been dominated by USD, stablecoins and Bitcoin, with those assets making up ~80%+ of the outstanding volumes for most centralized lenders at scale. The type of leverage created in the system by borrowing dollars or stablecoins has a very different impact on market structure than leverage denominated in other digital assets. It would be immensely beneficial to better understand the current composition of CeFi lending books. Many of them, like Tether, Ledn, Unchained Capital and others, are exclusively denominated in USD or USD equivalents. Since the events of 2022, underwriting standards and risk management processes around CeFi providers have materially improved, along with regulatory clarity in key markets. Many CeFi operators no longer accept deposits in alternative assets because of the volatility and risk. For context, using the Aave DeFi protocol as a benchmark, we see that major stablecoins borrowed only make up 45% of the total amount borrowed from the protocol. This suggests that more than half of the borrowing activity is being done in non-USD-denominated assets, which implies that the use cases and implications for market structure could be different than that of centralized finance volumes. What this means for investors In short, by adding back volumes from new digital asset investment vehicles like ETFs and DATCOs, we see that leverage in the digital asset system is charting new highs along with spot prices. And that there is significant nuance in the DeFi volume data that suggests not all lending activity is created equal. I expect that both CeFi and DeFi volumes will continue to soar and break records as digital assets continue to permeate through the mainstream. Reports like Galaxy’s are valuable assets for investors and end users, as it helps to paint an aggregate picture of leverage in the system. Editorial StandardsReprints & Permissions