I don’t have anything to do with crypto currencies unless they impact investments I do have.
Is crypto playing a role, too? Bitcoin is on an 11-day losing streak and has fallen more than 30 percent in the past six weeks. Given the record level of leveraged trading in digital tokens, some market watchers are worrying that investors are being forced to sell other assets, like stocks, to cover crypto margin calls. [end quote]
OK, what’s the deal here?
Crypto Leverage Hits Record High in Q3 as DeFi Dominance Reshapes Market Structure: Galaxy
Onchain lending drove crypto-collateralized debt to a new peak in last quarter, but the leverage underpinning the market is now better collateralized than during the previous cycle.
By Oliver Knight, AI Boost|Edited by Stephen Alpher, Coin Desk, Nov 19, 2025
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Onchain lending accounts for 66.9% of all crypto-collateralized borrowing, with DeFi loans hitting a record $41 billion, boosted by incentives, new collateral types and rapid growth on emerging chains like Plasma, according to a report from Galaxy Digital.
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Centralized lenders grew outstanding loans 37% to $24.4 billion, but with far tighter collateral requirements; Tether controls nearly 60% of tracked CeFi lending.
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The $19 billion Oct. 10 liquidation cascade was the largest in history, but Galaxy says it reflected exchange risk systems, not a buildup of systemic credit risk…. [end quote]
Huh? CeFi? DeFi?
CeFi stands for Centralized Finance.
- Definition: CeFi platforms operate similarly to traditional banks or brokerage firms, but for crypto assets. They are run by a centralized company or institution (like a crypto exchange or a lending platform).
DeFi stands for Decentralized Finance.
- Definition: DeFi refers to financial applications built on blockchain technology (usually using smart contracts) that operate without a central authority, such as banks or brokers. They are non-custodial and permissionless. [From Google Gemini.]
This is totally unregulated lending. It makes the Shadow Banking System look transparent.
If the loans are collateralized by cryptocurrency there will be margin calls when the value of crypto falls. DeFi is totally decentralized so lenders can be wiped out. CeFi is centralized but not regulated or insured (no FDIC) so it’s vulnerable to bank runs which could wipe out depositors as well as lenders.
The amount involved probably isn’t enough to swing the stock market but there could be pressure points.
Wendy