Is DeFi the Reason Crypto Rallies Are Stalling?
The crypto area is understood for explosive rallies. In October 2024, the complete market cap jumped from about $2.7 trillion to $3.8 trillion in simply two months. Something comparable occurred in early 2024 when the complete crypto market cap jumped from $1.7 trillion in February to $2.85 trillion by mid-March.
Today, the story seems completely different. Since June 2025, the market has solely moved from $3.5 trillion to $3.94 trillion. The market continues to be in a bull section (as specialists would recommend), however rallies maintain stalling. One purpose could also be hidden inside DeFi, the place borrowing dominates progress. Read on to know extra.
Borrowing Growth and Stablecoin Dominance
At press time, DeFi total value locked (TVL) stood at about $152 billion, with practically $49 billion borrowed throughout protocols. Using a 40% utilization assumption, lending swimming pools would wish roughly $123 billion of deposits to assist $49 billion borrowed. That could be about 81% of the $153 billion complete TVL — however that is an estimate.
TVL consists of many different belongings (staking, LPs, and bridge balances), so deal with the 80% determine as a tough signal of how huge lending is, not a exact share.
Utilization price means how a lot of the cash provided in a lending pool is definitely borrowed. For instance, if Aave has $57 billion deposited and $24 billion borrowed, the utilization price is about 40%.
Aave leads the sector with about $24 billion in excellent debt on Ethereum alone, that means the complete cash already borrowed from its swimming pools.
Compound provides round $986 million. Stablecoins dominate this borrowing. On Aave, $5.94 billion in USDT and $4.99 billion in USDC are borrowed. Compound reveals an analogous sample, with nearly $500 million in USDC and $190 million in USDT.
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This reliance on stablecoins issues. Traders don’t borrow ETH or risky cash to carry.
They borrow {dollars}. And like all mortgage, borrowed {dollars} should not saved idle. Just as folks take loans to purchase homes or automobiles, merchants borrow stablecoins to maneuver them elsewhere — most frequently to exchanges for buying and selling. But what sort of buying and selling!
Stablecoins Flow to Exchanges: Spot vs Derivatives
Stablecoin reserves present the place the cash goes. Spot exchanges presently maintain about $4.5 billion in stablecoins, up from $1.2 billion a 12 months in the past. By distinction, by-product exchanges jumped from $26.2 billion to $54.1 billion in the similar interval.
Derivative exchanges — the derivatives sections of main exchanges — maintain about $54.1 billion in stablecoins.
This tweet reveals how huge exchanges have large stablecoin liquidity, extra so on the derivatives facet of issues.
The break up is evident. Most borrowed stablecoins should not getting used for one-to-one spot shopping for of Bitcoin or Ethereum. They are despatched to derivatives platforms, the place every borrowed greenback acts as margin and might be multiplied 10 occasions, 25 occasions, and even 50 occasions. This shift reveals merchants choose leveraged bets over easy spot purchases.
The Futures buying and selling quantity on exchanges confirms that:
Leverage Builds Fragile Positions
Liquidation maps reveal how fragile leveraged buying and selling could make crypto rallies. On Binance, Bitcoin/USDT perpetuals — a kind of futures contract with no expiry — present about $6.22 billion in brief positions and $2.74 billion in lengthy positions. On Bitget, Bitcoin pairs add one other $5.71 billion in shorts and $2.09 billion in longs. Together, these two exchanges and one buying and selling pair add as much as practically $17 billion in open positions.
At current, brief positions are heavier as a result of the market is transferring sideways. But the dynamic flips throughout rallies. Traders load up on lengthy positions, hoping to journey the transfer increased.
When these lengthy bets cluster at comparable value ranges, even a small 2–3% pullback can wipe them out. This triggers a series of compelled liquidations, turning what ought to be sturdy crypto rallies into sharp reversals.
You may ask why the similar doesn’t occur in reverse — why brief liquidations don’t gasoline rallies in the similar approach. The distinction lies in how merchants use brief positions.
Many brief positions should not outright bearish bets, however a part of different methods. Traders farm funding premiums or run delta-neutral setups the place shorts hedge different positions. When these shorts disappear, the squeeze may cause sharp spikes, however they not often maintain. Unlike lengthy squeezes, which take away patrons from the market, brief squeezes are likely to fizzle out rapidly as an alternative of constructing lasting rallies.
This scale of publicity wouldn’t be attainable with out leverage. Remember, complete stablecoin reserves on by-product exchanges are near $54 billion. If all buying and selling had been one-to-one with out leverage, these two pairs we simply talked about earlier alone couldn’t account for practically a 3rd of that. This reveals simply how dominant leverage has develop into.
The measurement of this market is clearer when taking a look at volumes. In August 2025, Binance’s futures buying and selling quantity hit a yearly high of $2.62 trillion. That month-to-month complete, the largest this 12 months, underlines how futures and perpetuals now dwarf spot exercise and gasoline the scale of those leveraged positions.
Borrowing Costs Push Traders Toward Leverage
The ultimate piece is price. Borrowing stablecoins comes with curiosity. On Aave, the borrow APR for USDT is about 6%.
A dealer who borrows $1,000 pays about $1.15 every week. With 10x leverage, a hairline value transfer of simply 0.011% covers the curiosity price.
The hurdle is so low that merchants usually transfer towards increased leverage. Tiny strikes cowl prices, and bigger strikes carry larger earnings. But the longer positions keep open, the increased the price climbs.
This creates strain to exit rapidly, including to the cycle of rallies that rise and fade with out follow-through. And there additionally stays the threat of liquidation. For occasion, a 10X leverage would roughly liquidate the dealer for a ten% fall, one thing that isn’t unusual in crypto. Hence, whereas DeFi-led lengthy liquidations can stall rallies, the risk of such liquidations additionally stays high, owing to the risky nature of crypto.
Crypto rallies should not vanishing. The market continues to be bullish. But DeFi’s construction and overreliance on the lending-borrowing area could clarify why rallies are shorter and weaker. Borrowed stablecoins are fueling leverage, not spot demand, making the market extra fragile every time it tries to climb.
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