The crypto market saw significant growth during the second quarter, with a notable surge in mortgage volume to $53.1 billion, according to a report from Galaxy Research. This increase was fueled by rising demand for decentralized finance (DeFi) lending and a resurgence of risk appetite. However, this growth came amidst Bitcoin’s price decline, leading to over $1 billion in liquidations across the crypto derivatives market. While analysts see this as healthy profit-taking rather than a reversal, it highlights the market’s potential vulnerability when leverage rises rapidly. Aave withdrawals in July disrupted DeFi lending mechanisms, causing Ethereum’s staking rates to exceed ETH lending yields, leading to an accelerated deleveraging process and record high on-chain exit queues for Ethereum’s beacon chain. Moreover, increased demand for dollars off-chain has outstripped on-chain liquidity, as evidenced by the widening spread between USDC borrowing costs in the OTC market and stablecoin on-chain lending rates. This divergence could exacerbate volatility if market conditions tighten further.