April DeFi Exploits Drain $13B in TVL as Leverage Climbs to 2021 Levels, Says Binance

Decentralized finance is facing renewed pressure as a wave of DeFi exploits reportedly triggered a staggering $13 billion in outflows from the sector. In its latest research paper, crypto exchange Binance revealed that these outflows coincided with a significant rise in DeFi’s onchain leverage ratio.

According to Binance Research, this sharp rise in the leverage ratio is mainly driven by the sharp decline in the total value locked (TVL) rather than a rise borrowing demand. This indicates that the increased leverage level is result of reduced collateral than increased risk-taking by traders.

DeFi exploits trigger elevated on-chain leverage ratio

Binance Research shared its analysis on April DeFi exploits earlier today. In an X post, Binance Research revealed that the security breaches in April triggered $13 billion in TVL outflows. This has indeed led to the surge in on-chain leveraged ratio.

Source: Binance Research

According to Binance Research, the on-chain leverage ratio soared by a notable 38%, reaching levels seen in 2021. The platform’s X post read:

What pushed the leverage to 2021 highs?

On-chain leverage ratio is a metric used to measure the level of borrowing and leveraged positions within the DeFi ecosystem. The ratio measures borrowing activity relative to the TVL. Usually, a rising ratio signals greater use of leverage and possibly higher market risk.

However, Binance Research noted that the current surge in the on-chain leverage ratio is driven by the decline in TVL. This decline is a direct result of the significant surge in April DeFi exploits. The team added that the ratio doesn’t reflect a surge in borrowing demand.

It is worth noting that the DeFi space witnessed a total of about $606 million in losses in April due to rising crypto hacks. These DeFi exploits in April were led by KelpDAO and Drift Protocol hacks. As a result, investors who became increasingly worried about DeFi security withdrew tokens and liquidity from the sector. This massive withdrawal led to a significant fall in TVL, or the total value of assets locked in DeFi. The decline in TVL, in turn, reduced the amount of collateral backing of the ecosystem.

As per the Binance Research report, the leverage ratio rose not because of the traders’ aggressive borrowing. Instead, it was due to the shrinking collateral base. In simple terms, borrowing levels continue to stay stable while the overall capital base has dramatically fallen.

DeFi exploits persist despite drop in hack losses

Following the notable rise in DeFi exploits in April, there was a remarkable drop in similar losses in May. The month saw just $68.3 million in losses to crypto hacks.  But crypto hacks continue to impact the space, with protocols facing attacks targeting security vulnerabilities.

Recently, Humanity Protocol was hit by a $36 million hack. The exploit happened as attackers gained access to administrative keys connected to the bridge infrastructure.

Another major incident was the Aztec Connect hack, which involved $2.1 million in losses. Raydium was also targeted in another major DeFi exploit, causing losses of up to $1.3 million.