The drop in DeFi TVL has brought the on-chain leverage ratio back to 2021 levels, marking a moment of severe crisis for decentralized finance. According to Binance Research, the ratio between borrowed capital and total value locked (TVL) has risen to 38%, a figure not seen for more than five years.
Summary
Key points
- The DeFi leverage ratio has reached around 38%, a level comparable to that of 2021.
- The rise in leverage is mainly due to a drastic drop in TVL, not to an increase in borrowing.
- As of April 2026, hacker attacks stole around 606 million dollars, particularly affecting Kelp DAO and Drift Protocol.
- Security breaches caused capital outflows of around 13 billion dollars from the DeFi system.
- High leverage reflects more a collapse of the collateral pool than increased risk-taking by investors.
DeFi leverage returns to 2021 levels due to the drop in TVL
The on-chain leverage ratio measures how much capital is borrowed compared to the total value locked in DeFi platforms (TVL). It has recently risen to around 38%, a figure not seen since 2021. However, this spike is mainly linked to a compression of TVL, not to an increase in borrowing activity.
Binance Research clarified that the increase in leverage does not stem from a greater appetite for risk or an increase in loans. Rather, it is the result of a contraction in the available collateral capital, that is, the value physically locked in the platforms.
The April 2026 exploits trigger massive outflows from the DeFi sector
The main cause of the drop in TVL was a series of serious hacker attacks that took place in April 2026. BeInCrypto reported that hackers managed to steal around 606 million dollars, with the main losses recorded by Kelp DAO, which suffered a theft of around 292 million, and Drift Protocol.
These security incidents triggered a wave of distrust among investors, who withdrew massive capital flows from DeFi platforms. The result was a drastic outflow estimated at around 13 billion dollars in TVL, with heavy effects on the stability and liquidity of the entire DeFi ecosystem.
Systemic implications and fragilities of the DeFi market
Despite the overall market pullback, there has not yet been a significant reduction in leverage, leaving the system exposed to further risks. High leverage in combination with a contracting TVL can in fact amplify vulnerability to new liquidations and forced position closures if token prices were to fall further.
The situation outlines a fragile DeFi ecosystem that has not yet completed a structural reset after the spring outflows. The lack of a real deleveraging makes the context particularly treacherous for investors, increasing the likelihood of further market shocks.
Why does this dynamic matter for the DeFi market?
The rise in the leverage ratio associated with the drop in TVL is a warning sign. It does not represent greater risk-taking through loans, but rather a crisis of liquidity and confidence in the system. Those operating in the sector must consider that a system with reduced total capital and high financial leverage is more susceptible to rapid losses in value and chain reactions.
What could be the next developments?
If the pressure on DeFi token prices continues, it will be very likely to see new uncontrolled liquidations. This scenario could worsen the drop in TVL and push other investors to exit the sector, prolonging the phase of fragility. On the other hand, the situation highlights the need to strengthen security measures and transparency to restore trust.
Content created with the assistance of artificial intelligence and with human editorial review.
