In Q2 2025, leverage in the cryptocurrency market surged to new heights, with both DeFi and CeFi lending reaching record levels driven by market optimism and rising asset prices.

On-chain collateralized lending increased by 42% to $26.5 billion, and outstanding CeFi borrowing grew by nearly 15% month-over-month to $17.78 billion as of June 30, reflecting a robust expansion in crypto credit markets.

The overall crypto market experienced significant growth, with total mortgage volume rising 27% to $53.1 billion, primarily fueled by DeFi lending demand and a renewed appetite for risk among investors.

However, this surge in leverage has exposed vulnerabilities, as Bitcoin's price drop led to over $1 billion in liquidations last Thursday, highlighting the fragility of highly leveraged positions.

A notable liquidation event occurred when Bitcoin's price declined from $124,000 to $118,000, resulting in a $1 billion loss on long positions, underscoring the risks of over-leverage.

Despite the bullish market sentiment, systemic stresses are emerging, with liquidations totaling over $81 million in just four hours and over $211 million in 24 hours, mainly affecting long positions.

Major Wall Street firms like Brevan Howard and Goldman Sachs are increasing their Bitcoin ETF holdings, with Brevan Howard holding $2.3 billion in BlackRock’s iShares Bitcoin Trust, signaling institutional confidence.

The Federal Reserve is widely expected to cut interest rates by 25 basis points in September, which could further influence crypto markets.

In the broader crypto ecosystem, Chainlink's price surged 18% to around $26, due to its vital role in DeFi, and IOTA's recent upgrade led to a record TVL of $36 million, indicating strong bullish potential.

Security concerns persist, exemplified by Kraken suspending Monero deposits after a 51% attack by Qubic, raising questions about network security.

DeFi lending continues to expand rapidly, with USD-denominated loans rising over 42% to nearly $26.5 billion, now making up about 60% of total DeFi and CeFi lending.

The return of high leverage in crypto markets, combined with recent liquidations, suggests increased systemic risk and potential for larger volatility or crashes, despite ongoing institutional demand.