Event-Driven Borrowing and Volatile Basis Define Lending Flows
In this report:
Incentives and Governance Shape Liquidity in Lending Markets
Real-World Assets Broaden DeFi Collateral Pools
ETH 43 Day Exit Queue, Staking Inflows Sustain the Trend
Market Update
August brought notable shifts across spot and derivatives markets, shaping activity in lending. USDe borrow rates spiked around the launch of ENA DATs as companies accumulated USDe for use in structured DeFi yield strategies. This drove sustained borrowing demand for USDe, with participants seeking to capture ENA-linked yield opportunities on Pendle. Flows mixed institutional treasury allocations and more opportunistic trades. WLFI lending rates also moved higher, driven by unlock-related borrowing demand as traders hedged and positioned around upcoming token supply events.
Derivatives markets added to the volatility picture. BTC CME annualized basis fluctuated between 7% and 9.5%, briefly dipping below 7% before recovering. ETH CME basis was more volatile, falling from ~11% in mid-August to below 5% at the start of September before stabilizing near 7–8%. SOL CME basis showed the widest swings, starting near 14%, spiking above 25% into month-end, then collapsing below 13% before rebounding toward 18–19%. These moves reflected a mix of positioning around DAT events, leverage resets, and broad risk-taking appetite.
For lending desks, the key theme was basis-driven borrow demand layered on top of event-specific flows. ETH outpaced BTC early in the month, but borrow demand was driven primarily by the prolonged unbonding queue, as participants sought liquidity while staked ETH remained locked. SOL’s volatility tied to DATs supported borrow demand for hedging and directional trades, while BTC remained comparatively stable but supplied ample liquidity for collateral. The interplay of these forces left August characterized by event-driven borrowing (USDe, WLFI, SOL) and shifting basis spreads across majors, underscoring a market leaning risk-on but prone to sharp resets as leverage built up.
Key Trends:
001
Incentives and Governance Shape Liquidity in Lending Markets
In August, several notable shifts highlighted how liquidity in DeFi is being steered by both incentives and governance. The ArbitrumDAO’s approval of a 40 million ARB incentive program (DRIP) aims to channel rewards toward lending and liquidity provision on Arbitrum, signaling how layer-2 ecosystems are competing to anchor capital. On Solana, Jupiter expanded into lending, leveraging its position as the chain’s largest trading venue to keep more liquidity circulating within its own ecosystem. Meanwhile, the Stargate acquisition vote showed how governance choices can redirect the flow of cross-chain liquidity: despite a higher rival offer, the community chose to align Stargate back under LayerZero’s control, emphasizing structure and integration over headline valuation.
Euler added to this dynamic by introducing zkVerified Lending Vaults on Avalanche, combining roughly $570,000 in launch incentives with privacy- and compliance-focused design, signaling how incentive programs are now being tailored to attract institutional capital into DeFi. In lending markets, the takeaway is that incentives and governance outcomes are directly influencing where deposits concentrate, how cross-chain liquidity is routed, and the infrastructure through which collateral is transferred.
002
Real-World Assets Broaden DeFi Collateral Pools
In August, lending markets continued to expand the scope of what counts as acceptable collateral. These initiatives have started to admit assets such as tokenized U.S. Treasuries, short-term commercial paper, and private credit claims. These instruments are typically brought on-chain by issuers, which wrap traditional debt products into blockchain-based tokens that can be pledged in lending protocols. For borrowers, this means they can secure dollar-linked funding without being entirely dependent on crypto assets. For lenders, it provides access to yield streams tied to conventional markets — for example, government bonds offering around 4–5% annually, or higher-yielding private credit with distinct risk profiles. The broader impact is that DeFi lending is no longer limited to ETH, stablecoins, or governance tokens: it is beginning to incorporate instruments that look more like those in traditional repo and money markets, adding diversification and potential stability to the system.
003
Ethereum Exit Queue Stretched to 43 Days by Kiln, Yet Staking Inflows Sustain the Trend
Through August 2025, Ethereum’s staking system came under record exit pressure. The validator queue swelled past 1M ETH (~$4B) by August 28, with average wait times stretching beyond two weeks. Profit-taking at near-record ETH prices, positioning ahead of potential staking ETFs, and liquid staking providers like Lido and Coinbase pulling large blocks of ETH all contributed. The congestion intensified when Kiln initiated exits for ~1.6–1.8M ETH validators after a security incident involving its Solana staking API (used by SwissBorg) led to a major exploit, which alone accounted for the bulk of the queue. By September 9, the unbonding queue had stretched to an extraordinary 43 days, with Kiln making up roughly 70% of pending exits — making it clear that much of the backlog was driven by infrastructure risk management rather than a wholesale investor exodus.
At the same time, the entry queue climbed to two-year highs (~860k ETH, or ~$3.7B), nearly matching the exit side and signaling renewed demand for staking. Outside of Kiln’s one-off exit, the “organic” withdrawal queue stabilized around 700k ETH, showing no broader contagion. This matters for lending markets: when ETH is tied up in lengthy exit queues or restaked, circulating supply is effectively reduced, tightening available collateral and potentially impacting borrow rates. Kiln’s exits continue to inflate wait times, but underlying demand is rebounding, with entry queues competing with exits and signaling confidence in ETH’s long-term yield narrative.
Related Research:
Notable News:
Galaxy Leverages Solana DATs to Deepen Institutional Treasury Exposure
MetaMask mUSD with M0 & Stripe-Bridge for Custom Digital Dollars
USDH Governance: Community Pushes Back on Stripe-Linked Proposal
Trimont Taps JPMorgan Blockchain to Accelerate Loan Payment Settlements
Galaxy Digital Issues Tokenized Shares on Solana, Bridging TradFi & Crypto
Stripe & Paradigm’s Tempo Aims to Make Payments-First Blockchain for Stablecoins
Subscribe to receive this commentary and more directly to your inbox!
This document, and the information contained herein, has been provided to you by Galaxy Digital Holdings LP and its affiliates (“Galaxy”) solely for informational purposes. Galaxy provides comprehensive financial products and services to institutions, corporates, and qualified individuals (typically Eligible Contract Participants and accredited investors) within the digital asset ecosystem. This document may not be reproduced or redistributed in whole or in part, in any format, without the express written approval of Galaxy. Neither the information, nor any opinion contained in this document, constitutes an offer to buy or sell, or a solicitation of an offer to buy or sell, any advisory services, securities, futures, options or other financial instruments or to participate in any advisory services or trading strategy. Nothing contained in this document constitutes investment, legal or tax advice. You should make your own investigations and evaluations of the information herein. Any decisions based on information contained in this document are the sole responsibility of the reader. Certain statements in this document reflect Galaxy’s views, estimates, opinions or predictions (which may be based on proprietary models and assumptions, including, in particular, Galaxy’s views on the current and future market for certain digital assets), and there is no guarantee that these views, estimates, opinions or predictions are currently accurate or that they will be ultimately realized. To the extent these assumptions or models are not correct or circumstances change, the actual performance may vary substantially from, and be less than, the estimates included herein. None of Galaxy nor any of its affiliates, shareholders, partners, members, directors, officers, management, employees or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the information or any other information (whether communicated in written or oral form) transmitted or made available to you. Each of the aforementioned parties expressly disclaims any and all liability relating to or resulting from the use of this information. Certain information contained herein (including financial information) has been obtained from published and non-published sources. Such information has not been independently verified by Galaxy and Galaxy does not assume responsibility for the accuracy of such information. Affiliates of Galaxy’s own investments in some of the digital assets and protocols discussed in this document. Except where otherwise indicated, the information in this document is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof. The foregoing does not constitute a “research report” as defined by FINRA Rule 2241 or a “debt research report” as defined by FINRA Rule 2242 and was not prepared by GalaxyDigital Partners LLC. Similarly, the forgoing does not constitute a “research report”, as defined under CFTC Regulation 23.605(a)(9), and may only be considered a solicitation for entering into a derivatives transaction for purposes of CFTC Regulation 23.605. It is not intended to constitute a solicitation for any other purposes under CFTC or NFA rules, and it should not be relied on as a form of recommendation to trade under CFTC regulations. Any statement, express or implied, contained within these materials is subject, in all cases, to the actual terms of an agreement entered into with Galaxy Digital on a principal basis. The Information is being provided solely for informational purposes about Galaxy Digital and may not be used or relied on for any purpose (including, without limitation, as legal, tax or investment advice) without the express written approval of Galaxy Digital. The Information is not an offer to buy or sell, nor is it a solicitation of an offer to buy or sell, any investment banking services, securities, futures, options, commodities or other financial instruments or to participate in any investment banking services or trading strategy. Any decision to make an investment or enter into a transaction should be made after conducting such investigations as the investor deems necessary and consulting the investor’s own investment, legal, accounting and tax advisors in order to make an independent determination of the suitability and consequences of an investment. Additional information about the Company and its products and services can be found at Galaxy Digital’s website at galaxy.com. For all inquiries, please email [email protected]. ©Copyright Galaxy Digital Holdings LP 2025. All rights reserved.
As disclosed in Galaxy’s public filings and statements, Galaxy holds a financial interest in Bitcoin, Solana, Forward Industries Inc., Ethena, Arbitrum, Aave, and LayerZero. Galaxy regularly engages in buying and selling Bitcoin, Solana, Ethena, Arbitrum, and Aave for its own proprietary accounts and on behalf of its counterparties. It may also engage in hedging transactions for these assets. Galaxy has also provided services to or received services from Solana, Forward Industries Inc., LayerZero, Aave, and Ethena. Cryptocurrencies are inherently volatile and risky.
For additional risks related to digital assets, please refer to the risk factors contained in filings Galaxy Digital Inc. makes with the Securities and Exchange Commission (the “SEC”) from time to time, including in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, filed with the SEC on August 5, 2025 and Forward Industries, Inc., including in its Form 8-K filed on September 8, 2025 both available at www.sec.gov. This communication is for informational purposes only and is not intended to be an offer or solicitation to buy or sell Solana, Forward Industries Inc., Ethena, Arbitrum, Aave, or any other financial instrument. Readers should consult with their own advisors and rely on their independent judgement when making financial or investment decisions. Information in this disclaimer is accurate as of the time and date of this posting and will not be updated to reflect any subsequent developments. For Galaxy’s full social media disclaimer, please visit: https://www.galaxy.com/social-disclaimer/.