Report: Decentralized Finance lending has risen 959% since 2022, reaching $19.1 billion.

The accelerated shift towards DeFi platforms reflects a broader adjustment in the flow of capital and risk frameworks within the Crypto economy.

Source: cryptoslate

Translated by: Blockchain Knight

A recent Galaxy report pointed out that although Tether dominates the Crypto lending market alongside two other companies, the outstanding loan amount of decentralized applications has nearly doubled 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 positions stablecoins allows people to gain a clearer understanding of the Crypto asset lending market situation. The report indicates that there may be an overlap between the total scale of the centralized finance (CeFi) loan ledger and the supply of CDP stablecoins.

The reason is that certain specific CeFi lending institutions use cryptocurrency as collateral to mint CDP stablecoins, which are then lent to off-chain borrowers, potentially leading to double counting.

When the CDP stablecoin is factored in, the market size expands to $36.5 billion. Tether, Galaxy, and Ledn account for 88.6% of the CeFi lending space, with a total loan book of $9.9 billion. This group accounts for 27% of the total crypto lending market that includes CDP stablecoins.

The market size of 36.5 billion USD has decreased by 43% from the peak of 64.4 billion USD in the fourth quarter of 2021. The market contraction is attributed to the collapse of several lending institutions and a general decline in borrower demand.

CeFi for Institutions

CeFi lending mainly includes three categories: over-the-counter (OTC) lending, prime brokerage services, and on-chain private credit.

These services are aimed at institutional borrowers, providing customized terms and collateral structures, usually executed through off-chain or hybrid mechanisms.

OTC loans remain relatively common among qualified investors due to bilateral customization features such as adjustable loan-to-value ratios and maturity terms.

Major brokers provide guaranteed financing linked to a range of narrower digital assets and exchange-traded products. Meanwhile, on-chain private credit allows users to deploy capital through on-chain liquidity aggregation, leveraging off-chain credit protocols.

Despite centralized services offering customized credit products, their business coverage has significantly shrunk due to high-profile bankruptcy events between 2022 and 2023, which have increased counterparty risk and decreased retail trust.

Decentralized Finance lending has grown 959% since 2022

In the fourth quarter of 2024, the open lending amount of DeFi protocols reached $19.1 billion, distributed across 20 lending applications and 12 blockchain networks.

This figure has increased by 959% compared to the open lending low of $1.8 billion in the DeFi market in the fourth quarter of 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, along with newer cross-chain services, provide real-time transparency, flexible interest rates, and automated liquidation mechanisms. The modular design of Decentralized Finance allows it to adapt to user needs, asset risks, and the ever-changing liquidity conditions.

This growth reflects users’ preference for minimizing trust infrastructure and the operational stability demonstrated by Decentralized Finance protocols under volatile market conditions.

The report summary states that centralized entities like Tether are crucial in institutional lending. However, the accelerated shift towards Decentralized Finance platforms reflects a broader adjustment of capital flows and risk frameworks in the Crypto economy.