Crypto-Collateralized Lending Falls $3.62B in Q1 2026 as DeFi Exploits Drive Capital Flight

According to Galaxy Research's State of Crypto Leverage Q1 2026 report, crypto-collateralized lending contracted $3.62 billion (-5.1%) to $67.42 billion in Q1 2026, falling 14.3% below Q3 2025 highs. DeFi outstanding loans dropped $4.53 billion (-13.82%) to $28.22 billion over the quarter, driven by two nine-figure exploits: Drift ($285 million) and LayerZero/KelpDAO ($290 million).

The LayerZero/KelpDAO exploit triggered severe capital outflows from Aave within two weeks, with over $5.5 billion in stablecoin supply withdrawn, $3.1 billion in stablecoin loans closed, and more than 943,000 WETH pulled out. CeFi loan books contracted 7.23% to $25.43 billion—the first quarterly decline since Q4 2023—but remained above Q3 2025 levels. Futures open interest fell 12.83% to $104.19 billion.