40% Drop ≠ Crash: Galaxy Q2 Report Reveals the Resilience of the Crypto Credit Market

Q2 crypto credit fell 40% from its peak, with a gradual deleveraging process. CeFi has surpassed DeFi for the first time, stablecoin interest rates are pegged to the US dollar, and high leverage risks on-chain still exist, with corporate debt and futures contracts contracting in tandem.

Report Overview

On August 16, 2026, Galaxy Digital released “The State of Crypto Leverage — Q2 2026: An Orderly, Measured Decline.” The report indicates that the crypto collateral loan market contracted for the third consecutive quarter in Q2 2026, with a total scale of $56.16 billion, down 40.13% from the peak in Q3 2025. However, unlike the brutal 55% drop in a single quarter in 2022, this round of deleveraging has shown a gradual “stair-step” characteristic—declining by 10%, 5%, and 17% over the past three quarters, driven by the market’s proactive risk reduction rather than forced liquidations or counterparty defaults. The report unfolds from the following dimensions:

• Changes in overall market size and structure: Tracking the deleveraging process of CeFi, DeFi, and CDP stablecoins, analyzing the migration of market shares across sectors.
• Resilience differentiation between CeFi and DeFi: The decline in CeFi is significantly smaller than that of DeFi, surpassing it for the first time since Q3 2023, with funds concentrating on compliant platforms.
• Interest rate environment and asset pricing: The borrowing costs of stablecoins follow the upward trend of the federal funds rate, with structural price differences between on-chain and off-chain lending for BTC/ETH.
• Microstructure of on-chain leverage: Using Aave V3 core instances as samples, revealing the risk structure of high leverage in e-mode, collateral concentration, and ETH staking circular arbitrage.
• Corporate debt and futures market: The deleveraging of digital asset treasury strategies contracts in tandem with the futures open interest, verifying the orderly retreat of overall market risk appetite.

Structural Reversal between CeFi and DeFi

CeFi Shows Greater Resilience, Leading Again

Galaxy’s tracked CeFi outstanding loans amount to $22.98 billion, contracting 9.62% quarter-on-quarter, but the decline is significantly smaller than DeFi’s 27.61%. In this context, the outstanding loans of DeFi lending applications dropped to $20.43 billion, marking the first time since Q3 2023 that CeFi’s books have surpassed DeFi.

In terms of market share, DeFi’s proportion in crypto collateral loans fell from 41.81% in Q1 to 36.37%, while CeFi rose from 37.69% to 40.93%, and the share of crypto collateral CDP stablecoins slightly increased to 22.7%. If we combine DeFi lending and CDP stablecoins into “on-chain lending,” their overall market share still accounts for 59.07%, but has decreased by 324 basis points from Q1.

Concentration at the Top but Funds Migrating to Compliant Platforms

Within CeFi, market concentration remains high but slightly loosening. Tether holds the top position with a 58.54% share, although it has decreased by 371 basis points from the previous quarter; Maple and Nexo follow with 8.91% and 7.51%, respectively, collectively controlling 74.96% of the market.

Interestingly, although CeFi is overall contracting, institutions like Galaxy, Coinbase, Ledn, Arch, Sygnum, and Milo have seen growth in their books in Q2, indicating that funds are concentrating on leading and more compliant platforms.

Interest Rate Environment: Deeply Linked to Macroeconomic Policy

Stablecoin Rates Follow US Dollar Liquidity

In terms of interest rates, the borrowing costs of stablecoins continue to be linked to macro monetary policy. The weighted average stablecoin borrowing rate rose by 27 basis points during the quarter, further climbing to 3.88% after the quarter-end. The off-chain benchmark rates for USDC and USDT fluctuated between 4.25% and 5% throughout the quarter, essentially pegged to the federal funds rate.

This indicates that DeFi’s credit pricing has not operated independently from the traditional monetary policy environment, but exists as a distant extension of US dollar liquidity.

Structural Divergence of On-Chain and Off-Chain BTC and ETH

The borrowing rates for BTC and ETH exhibit structural divergence between on-chain and off-chain. The on-chain borrowing rate for WBTC fluctuated between 0.44% and 0.5%, while the off-chain BTC borrowing rate remained at 1% throughout the quarter. The source of this price difference is clear: off-chain BTC borrowing demand mainly comes from short selling and collateral financing, while on-chain WBTC is more passively held as collateral, with low borrowing demand.

The situation for ETH is more complex. The cost of borrowing ETH on-chain is usually higher than that of stETH, as many users leverage through “circular strategies” to participate in staking—using liquid staking tokens (LST) or liquid re-staking tokens (LRT) as collateral, borrowing ETH, and then staking again, repeatedly amplifying exposure to staking yields. This strategy is only effective when the cost of borrowing ETH is lower than the staking APY, thus the on-chain borrowing rate for ETH has been long capped by staking yields.

Aave V3 Micro Perspective: Where is Leverage Concentrated?

High Leverage Characteristics of e-mode

The micro data from Aave V3 core instances provides a footnote to the above logic. As of the snapshot on August 7, after excluding small holdings and over-collateralized positions, the net outstanding loans amount to approximately 19,073. Although “efficiency mode” (e-mode) loans only account for 8.91% of open positions, they contribute nearly half of the outstanding debt.

Borrowers in e-mode exhibit significantly higher leverage levels: the debt-weighted LTV is approximately 90%, the health factor is close to 1.06, and the debt-to-equity ratio is about 10.7. This means that even a slight fluctuation in collateral can push a large number of positions into liquidation pressure zones. In contrast, non-e-mode loans have a debt-weighted LTV of about 49%, a health factor of about 1.79, and a much more relaxed safety margin.

Concentration of Collateral and Liabilities

From the perspective of collateral structure, the risk concentration in Aave V3 core is not low. WETH, weETH, and wstETH together account for approximately 54.6% of the total collateral, while WBTC accounts for about 14%. Within e-mode, this concentration is even more extreme: weETH alone accounts for about 42% of e-mode collateral, and combined with rsETH and wstETH, ETH staking/re-staking assets cover 66.2% of e-mode collateral.

The borrowing side is also concentrated, with WETH accounting for about 37% of total liabilities, and USDT and USDC together accounting for about 50%. However, one change is that the proportion of WETH liabilities has significantly decreased from 51.1% in previous analyses, which coincides with the overall reduction in e-mode loans.

Corporate Debt and Futures Market Contracting in Tandem

Corporates Actively Deleveraging

Corporate finance is also synchronously deleveraging. Galaxy currently tracks $16.1 billion in corporate debt used for direct purchases or supplementing digital asset treasury strategies, with the Strategy completing a $1.5 billion debt buyback in May, which is the main contributor to the quarterly decline.

Including this type of cryptocurrency-related corporate debt, the total outstanding debt on-chain and off-chain at the end of Q2 was $73.2 billion, marking a continuous decline for the third consecutive quarter, with a year-on-year decrease of 15.08%.

Futures OI Mildly Adjusts and Then Rebounds

The futures market provides another window to observe leverage. At the end of Q2, the futures open interest (OI) decreased by 3.08% to $103.2 billion, with BTC OI down 6.24% to $45.04 billion, and ETH OI experiencing a larger decline of 26.31% to $21.99 billion. Together, they account for 65% of the total OI in the futures market.

However, this mild overall decline masks a rebound after the quarter-end—by the end of July, total OI had risen to approximately $114 billion, with both BTC and ETH rebounding from their Q2 lows. The report also reminds that OI itself does not equate to absolute leverage, as some positions can achieve delta neutrality through spot long hedging.

Conclusion

The crypto credit market in Q2 2026 is undergoing a “soft landing” type of deleveraging. Unlike the brutal 55% drop in a single quarter in 2022, this round of contraction has lasted for three quarters, with a steady pace and no chain liquidations triggered. CeFi has shown greater resilience than DeFi, the interest rate environment remains linked to traditional monetary policy, while micro data from protocols like Aave reveals the true structure of concentrated on-chain leverage and staking derivative circular arbitrage. The synchronous retreat of the corporate side and futures market further confirms that the entire ecosystem is actively contracting rather than passively collapsing. Data from early July suggests that DeFi borrowing and futures OI may have reached a phase bottom, and if this gradual adjustment can continue, the market’s risk resistance capacity will be significantly stronger than in the previous cycle.