A recent Galaxy report highlighted the growth of decentralized applications in the crypto lending market, which posted nearly double the amount in outstanding loans compared to centralized entities like Tether. The report stated that the crypto lending market was approximately $30 billion at the end of 2024, excluding collateralized debt position stablecoins. It noted that there may be some overlap between centralized finance loan books and the supply of CDP stablecoins, potentially leading to double-counting. Including CDP stablecoins, the market size was $36.5 billion, down 43% from its peak in the last quarter of 2021.
Centralized finance lending for institutions includes over-the-counter lending, prime brokerage services, and on-chain private credit. These offerings cater to institutional borrowers with customized terms and collateral structures, often executed off-chain or via hybrid mechanisms. The report mentioned that OTC loans are popular among accredited investors due to their customizable features, while prime brokers offer margin financing tied to a limited set of digital assets. On-chain private credit allows users to deploy capital using off-chain credit agreements via on-chain liquidity aggregation. However, the reach of centralized services has narrowed due to counterparty risks and decreased retail trust following insolvencies in previous years.
DeFi lending, on the other hand, has seen significant growth, with open borrows across protocols reaching $19.1 billion in the fourth quarter of 2024. This represents a 959% increase from the last quarter of 2022. DeFi lending allows 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 for adaptation to user demand, asset risk, and changing liquidity conditions, showcasing operational stability during volatile market conditions.
The report concluded that while centralized entities such as Tether are crucial in institutional lending, there is an accelerating shift towards DeFi platforms. This shift indicates a broader realignment of capital flows and risk frameworks within the crypto economy, reflecting a preference for trust-minimized infrastructure and the benefits of decentralized finance protocols. Overall, the growth of DeFi lending and the resilience of permissionless platforms have contributed to the changing landscape of the crypto lending market.
In summary, the Galaxy report highlighted the significant growth of decentralized applications in the crypto lending market, outpacing centralized entities like Tether. The report emphasized the increasing popularity of DeFi lending, which offers users direct interaction with smart contracts and transparent, flexible lending options. While centralized finance lending for institutions remains relevant, the shift towards DeFi platforms signifies a broader change in capital flows and risk frameworks within the crypto economy. This evolution showcases the benefits of decentralized finance protocols and the operational stability they provide during turbulent market conditions.
