The crypto lending market has seen significant shifts in recent years, with decentralized applications now dominating the space. A recent report from Galaxy revealed that at the end of 2024, decentralized applications had nearly double the outstanding loans compared to centralized entities like Tether, Galaxy, and Ledn.
The total crypto lending market was valued at around $30 billion on Dec. 31, excluding collateralized debt position (CDP) stablecoins. This exclusion was done to provide a clearer view of the market, as there may be overlap between CeFi loan books and the supply of CDP stablecoins. When including CDP stablecoins, the market size expands to $36.5 billion.
Tether, Galaxy, and Ledn made up 88.6% of the centralized finance (CeFi) lending sector, with a combined loan book of $9.9 billion. This group represented 27% of the total crypto lending market, including CDP stablecoins. However, the overall market size has contracted by 43% from its peak in the last quarter of 2021, attributed to the collapse of multiple lenders and a decline in borrower demand.
CeFi lending caters to institutional borrowers through OTC lending, prime brokerage services, and on-chain private credit. These offerings provide customized terms and collateral structures, often executed off-chain or via hybrid mechanisms. However, the reach of centralized services has narrowed due to counterparty risk and decreased retail trust following high-profile insolvencies in recent years.
On the other hand, decentralized finance (DeFi) lending has seen a remarkable 959% increase since 2022. Open borrows across DeFi protocols reached $19.1 billion in the fourth quarter of 2024, spread over 20 lending applications and 12 blockchain networks. The surge in DeFi lending is attributed to the resilience of permissionless platforms, cross-chain capital mobility, and specialized lending applications.
DeFi lending enables users to interact directly with smart contracts to borrow and lend assets without intermediaries. Platforms like Aave, Compound, and newer cross-chain services offer transparency, flexible rates, and automated liquidation mechanisms. The modular design of DeFi protocols allows them to adapt to user demand and changing market conditions.
While centralized entities like Tether play a crucial role in institutional lending, the shift towards DeFi platforms reflects a broader realignment of capital flows and risk frameworks within the crypto economy. The growth of DeFi lending showcases a preference for trust-minimized infrastructure and operational stability during volatile market conditions.