Bitplanet Says Crypto-Backed Loan Balances Fell 17% in Q2, Differing From 2022

Bitplanet Research Lab said Aug. 26 that it had published a report titled "Crypto Lending Contraction: What’s Different From 2022?" analyzing the recent deleveraging trend in the digital-asset collateralized lending market.

The report said outstanding loans backed by digital assets fell to $56.16 billion in the second quarter, down $11.33 billion, or 16.78%, from the previous quarter. That was about 28.6% below the peak of $78.69 billion recorded in the third quarter of last year. It also marked the first time since the fourth quarter of 2022 that collateral in decentralized finance, or DeFi, centralized finance, or CeFi, and collateralized debt positions, or CDPs, all declined.

Bitplanet said the latest drop was unfolding differently from the credit squeeze that hit the digital-asset market in 2022. In the second quarter of 2022, outstanding loans plunged more than 55% in a single quarter. The collapse of Terra then triggered a chain of liquidity crises and bankruptcies involving Three Arrows Capital, Celsius, Voyager and BlockFi.

This time, outstanding loans fell more gradually over three quarters, declining about 10%, 5% and 17% from the fourth quarter of last year through the second quarter of this year. Unlike in 2022, when lending balances collapsed all at once, no chain of bankruptcies among major lenders has emerged so far. Bitplanet also pointed to another difference: unsecured lending amplified the market shock in 2022, while a substantial share of loans now carries collateral.

Still, the firm said a smaller lending market does not mean all risks have been eliminated. "In some on-chain lending markets, high-risk loans that borrow up to about 90% of collateral value still account for a significant share," Bitplanet said. "If digital-asset prices fall further, liquidations of those loans could increase market volatility."

Based on the data so far, Bitplanet said it is difficult to view the current decline in outstanding loans as a repeat of 2022. It added, however, that the assessment would need to be revisited if lending balances fall more than about 29% in a single quarter, or if major lenders suspend withdrawals or file for bankruptcy over the following one or two quarters.