The accelerated shift towards DeFi platforms reflects a broader adjustment in the capital flow and risk framework within the Crypto economy.
Source: cryptoslate
Translation: Blockchain Knight
A recent Galaxy report pointed out that although Tether and two other companies dominate the Crypto lending market, the amount of outstanding loans in decentralized applications is expected to nearly double by the end of 2024.
The report shows that, excluding collateralized debt position (CDP) stablecoins, the size of the Crypto lending market was approximately $30 billion as of December 31.
Excluding collateralized debt position stablecoins allows for a clearer understanding of the Crypto asset lending market. The report noted that there may be an overlap between the total size of centralized finance (CeFi) loan books and the supply of CDP stablecoins.
The reason is that certain specific CeFi lending institutions use cryptocurrencies as collateral to mint CDP stablecoins, which are then lent to off-chain borrowers, potentially leading to double counting.
If CDP stablecoins are included in the calculation, the market size would expand to $36.5 billion. Tether, Galaxy, and Ledn account for 88.6% of the CeFi lending sector, with a total loan book of $9.9 billion. This group represents 27% of the total Crypto lending market when including CDP stablecoins.
The market size of $36.5 billion is a 43% decrease from the peak of $64.4 billion in Q4 2021. The market contraction is attributed to the collapse of several lending institutions and a general decline in borrower demand.
Institutional CeFi
CeFi lending mainly includes three categories: over-the-counter (OTC) lending, prime brokerage services, and on-chain private credit.
These services target institutional borrowers, offering customized terms and collateral structures, typically executed through off-chain or hybrid mechanisms.
Due to features like adjustable loan-to-value ratios and maturity terms, OTC loans remain relatively common among qualified investors.
Prime brokers provide guaranteed financing linked to a narrower range of digital assets and exchange-traded products. Meanwhile, on-chain private credit allows users to deploy capital through on-chain liquidity aggregation, utilizing off-chain credit protocols.
Although centralized services offer customized credit products, their business coverage has significantly shrunk due to high-profile bankruptcy events between 2022 and 2023, which increased counterparty risk and decreased retail trust.
DeFi lending has grown 959% since 2022
In Q4 2024, the open lending amount of DeFi protocols reached $19.1 billion, distributed across 20 lending applications and 12 blockchain networks.
This figure represents a 959% increase from the low of $1.8 billion in open lending in the DeFi market in Q4 2022. The report attributes this surge to the resilience of permissionless platforms, cross-chain capital liquidity, and the emergence of specialized lending applications.
Unlike CeFi, DeFi lending allows users to interact directly with smart contracts to borrow and lend assets without intermediaries.
Protocols like Aave and Compound, as well as newer cross-chain services, provide real-time transparency, flexible interest rates, and automatic liquidation mechanisms. The modular design of DeFi enables it to adapt to user needs, asset risks, and changing liquidity conditions.
This growth reflects users' preference for minimizing trust infrastructure and the operational stability exhibited by DeFi protocols under volatile market conditions.
The report concludes that centralized entities like Tether are crucial in institutional lending. However, the accelerated shift towards DeFi platforms reflects a broader adjustment in the capital flow and risk framework within the Crypto economy.
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