Key Takeaways
- Crypto asset-backed lending reached an all-time high of $73.59 billion in Q3 2025, up 38.5%.
- DeFi lending grew 54.84% to $40.99 billion, marking a new record.
- Tether, Nexo, and Galaxy dominated the CeFi lending market, holding 75.66% of the market share.
- Futures markets experienced the largest liquidation event in history on October 10th, leading to a significant drop in open interest.
Market Overview
Q3 2025 witnessed a significant surge in crypto asset-backed lending activity, surpassing previous record levels seen in Q4 2021. However, the current market dynamics differ significantly from those prevailing in prior cycles. One notable change is the substantial increase in the share of on-chain lending, which has risen from 48.6% in Q4 2021 to 66.9% currently. Furthermore, the balance within the on-chain lending sector has shifted, with lending applications now accounting for over 80% of the market, while collateralized debt position (CDP) stablecoins represent just 16%. This indicates a market shift away from synthetic crypto-backed stablecoins and towards lending of centralized stablecoins like USDT and USDC.
CeFi Lending Trends
In contrast to prior cycles, unsecured (or undercollateralized) lending has become exceedingly rare in the CeFi sector. Following the 2022 credit crisis, firms that weathered the storm recognized that opaque, relationship-based lending had become a reputational and commercial liability. Many firms are now pursuing IPOs or seeking funding from more institutionalized channels, which compels them to strengthen internal risk controls and adopt fully collateralized standards. As a result, the CeFi credit space has contracted and become more conservative, with transparency and collateral quality serving as core elements of credibility.
Collateral Quality and Use of Funds
The uptick in lending should not, in itself, be cause for alarm. The real risks lie in the quality of the collateral and the purpose to which the borrowed funds are put. This quarter differs substantially from 2021, where the prior period was defined by uncollateralized lending, pursuit of speculative yields in short-term protocols, and more volatile assets as collateral. Today, collateralized lending is the norm, the field has greater visibility in the system (increased on-chain lending share, public companies disclosing their books), and collateral is more heavily concentrated in BTC, ETH, and stable, yield-bearing assets.
Futures Liquidation Event
That being said, futures markets experienced the largest liquidation event in history shortly after the close of Q3. On October 10th alone, over $19 billion worth of perpetual contract positions were liquidated, in addition to billions more that were closed via auto-deleveraging (ADL). While this event did lead to a significant clearing of open interest, it does not necessarily suggest systemic over-leveraging in the realm of crypto-backed secured lending. The liquidations occurred due to rapid price declines, which forced the closure of even moderately leveraged positions. However, it was perpetual contract markets that were cleared, primarily due to the mechanism design and the magnitude of the price drop, and not pervasive over-lending.
Digital Asset Treasury (DAT) Strategies
At the start of Q3, digital asset treasury (DAT) companies were once again in focus, with non-Bitcoin related assets taking precedence. Ethereum DATs, such as SBET and Bitmine, received greater attention as reserve strategies began to be implemented, and the Solana DAT landscape also expanded with the launch of Forward Industries. Outstanding debt remained steady throughout the majority of the year, increasing by $422.5 million in Q3. Strategy still holds the most debt, at $8.214 billion. Total outstanding debt, inclusive of debt incurred by DATs, reached a new all-time high of $86.26 billion in Q3, up 31.33% QoQ.
Futures Market
As of September 30, futures open interest (OI), including perpetual futures, grew 41.46% QoQ, from $132.75 billion to $187.79 billion, and reached an all-time high of $220.37 billion on October 6. Following the perpetual futures liquidation event on October 10, OI abruptly declined 30% from $207.62 billion on October 9 to $146.06 billion at the close of October 10. The liquidation flush on October 10 was the largest single-day futures liquidation event in history, with over $17 billion in long and short positions liquidated.
Conclusion
Q3 2025 saw new highs in outstanding loans, futures OI, and DAT debt, but the composition of leverage is different than in prior cycles. Growth has been primarily driven by collateralized on-chain and CeFi lending, rather than unsecured credit and highly speculative strategies. While the October 10 liquidation event exposed the scale and reflexivity of leverage in derivatives, it did not reveal systemic credit risks. Most forced closures were mechanical, not insolvency-driven. Nevertheless, the event highlighted that leverage remains deeply embedded in market structure, even if its transmission channels have changed. Overall, crypto leverage has expanded again, but with stricter collateral standards, greater transparency, and clearer lines between credit and speculation. The system is not without risks, but its foundations are firmer than in 2021.
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