Galaxy Research: Bitcoin (BTC) in Focus as Crypto Lending Slips 17% to $56.16B

Crypto News

Galaxy Research’s Q2 2026 leverage report shows that crypto-collateralized lending — borrowing backed by Bitcoin and other digital assets — shrank by $11.33 billion, or 16.78%, during the second quarter, leaving the market at $56.16 billion. The drop, confirmed by the firm’s on-chain and exchange data, marks a third consecutive quarterly decline for a sector still working through leverage built up during the 2025 rally. Galaxy Research calls it the first quarter since Q4 2022 in which on-chain lending declined across every major category. Outstanding borrows on decentralized finance (DeFi) lending applications fell $7.79 billion, or 27.61%, to $20.43 billion, the steepest drop among the report’s three main lending legs. Centralized finance (CeFi) open loans receded 9.62% to $22.98 billion, with Tether accounting for most of that reduction; Tether’s market share in CeFi lending slipped 371 basis points to 58.54%. The crypto-collateralized portion of collateralized debt position (CDP) stablecoin supply, a mechanism distinct from algorithmic stablecoins, fell 7.86% during the quarter, extending the decline into every tracked segment. Despite the broad pullback, not every lender contracted: Galaxy, Coinbase, Ledn, Arch, Sygnum, and Milo all grew their lending books in Q2. The market now stands 40.13% below its all-time high of $78.69 billion from the third quarter of 2025. Galaxy Research described the move as an orderly unwind rather than forced selling, with institutions gradually reducing risk instead of dumping collateral. This dynamic differentiates the current downturn from earlier credit events, when failures forced abrupt liquidations. The report also noted potential double-counting between total CeFi loan book size and CDP stablecoin supply, because some CeFi entities mint crypto-backed stablecoins to fund offchain loans. That caveat matters when reading the headline totals. For market participants, the key takeaway is that leverage is being removed across both decentralized and centralized venues, while some of the largest lending operations continue to expand selectively.

The current deleveraging cycle is moving at a very different speed from the one that followed the 2022 credit collapse. In Q2 2022, crypto-backed loans fell more than 55%, then dropped another 9% and 29% in the following two quarters. In 2022, the damage came after major lenders failed; this cycle has not featured a comparable counterparty collapse. By contrast, the present sequence has produced quarterly declines of 10%, 5%, and 17%, a slower bleed that Galaxy Research attributes to deliberate risk reduction rather than forced liquidations or counterparty failures. The firm’s report puts it succinctly: lending markets are “taking the stairs down, not the elevator.” Early post-quarter data from DeFi lending applications — a segment that includes protocols such as Aave — also suggest the worst of the decline may be over. DeFi borrows recovered to $21.94 billion by July 21, up from $20.43 billion at the end of Q2, while futures open interest, which fell 3.08% to $103.2 billion in Q2, climbed back to roughly $114 billion by late July. Galaxy Research frames those moves as possible evidence that on-chain borrowing and open interest are finding a floor. The firm cautions, however, that these are early signals rather than confirmation of a durable bottom. Corporate treasuries have joined the trend as well. Strategy completed a $1.5 billion debt repurchase in May, reducing debt tied to digital-asset treasury strategies to $16.1 billion. That move, alongside the lending data, points to a market shedding leverage without the panic that defined the 2022 cycle. The slower pace gives lenders and borrowers time to adjust positions, and exchange data suggests margin calls have so far remained manageable. Still, the report cautions that the direction of the broader market will determine whether this gradual unwind continues or accelerates.

Taken together, the across-the-board lending decline in Q2 and the slower quarterly drawdowns describe a market choosing to de-risk rather than being forced into liquidation. Galaxy Research’s report, the primary source for these figures, stresses that no lending category escaped the pullback and labels the process “taking the stairs down.” Our reading of the July rebound in DeFi borrows and open interest is cautiously constructive: if the stabilization holds, the market may have passed the most aggressive phase of leverage reduction. The main risk is external — a sharp drop in Bitcoin or altcoin prices could still convert this orderly unwind into forced selling.