The crypto lending market is recovering, with decentralized platforms leading this resurgence as highlighted in a Galaxy report. DeFi lending accounts for over 60% of the current $36.5 billion market, reflecting a significant shift towards automated, permissionless lending. Centralized players remain troubled following the 2022 crash related to major bankruptcies and regulatory scrutiny, while Tether dominates centralized lending solutions.
The crypto lending market is currently experiencing a resurgence, primarily through decentralized platforms, as highlighted in a recent report by Galaxy. Following a downturn in 2022, these decentralized finance (DeFi) platforms have emerged as leaders in crypto lending, while centralized counterparts continue to face challenges in recovery.
Centralised finance (CeFi) lending involves institutions such as trading firms and exchanges that manage loans, vet users, and define terms, operating within closed systems requiring user trust. Conversely, DeFi platforms utilise smart contracts on public blockchains, allowing anyone with a crypto wallet to engage in lending and borrowing, typically through overcollateralised loans involving assets like stablecoins.
In Q4 2024, the total value of crypto loans was reported at $36.5 billion, where decentralized platforms accounted for approximately 60% of lending, totalling $19.1 billion. Galaxy noted the “permissionless nature” of DeFi as a significant influence on its market growth, showcasing resilience even in adverse market conditions that affected many CeFi platforms.
DeFi lending’s success is underscored when comparing it to centralized lenders suffering from liquidity crises, such as Genesis and Celsius Network. The Galaxy report emphasises that major decentralized lending applications remained operational during the 2022 downturn, reflecting robust design and risk management compared to their CeFi counterparts.
DeFi applications expanded their market share from 34% in 2021 to 63% by Q4 2024, highlighting a marked shift towards on-chain solutions amid uncertainty. This evolution signifies growing user preference for decentralized methods over traditional models.
The current crypto lending landscape is a stark contrast to its peak of $64.4 billion in late 2021, coinciding with the fallout of FTX and the subsequent bankruptcies involving Genesis Global Capital. The Securities and Exchange Commission (SEC) has also scrutinised crypto lending, with notable actions leading to the termination of various lending programs by Coinbase and BlockFi.
As regulatory discussions continue, Tether has solidified its position as the leading entity in centralized crypto lending, commanding over 70% of the market by Q4 2024, significantly ahead of its nearest rival, Galaxy. Despite some legislative measures being considered, banks maintain a cautious approach towards crypto lending initiatives as the industry navigates its recovery from previous instabilities.
