The size of the crypto lending market is still considerably lower than its peak of $64 billion, yet decentralized finance (DeFi) borrowing has rebounded by over 900% from its lows during the bear market.
Crypto lending allows borrowers to leverage their crypto assets as collateral to secure loans in either crypto or fiat currency, while lenders can earn interest by providing their assets for loans.
Currently, the crypto lending sector has declined by more than 43%, dropping from an all-time high of $64.4 billion in 2021 to approximately $36.5 billion by the end of Q4 2024. This downturn is largely linked to significant disruptions among lenders and a reduction in demand from various funds, individuals, and corporations, as noted by a research analyst.
The downturn of the crypto lending market began in 2022 with the bankruptcy of notable centralized finance (CeFi) lenders like Genesis, Celsius Network, BlockFi, and Voyager, which led to a steep decline in crypto valuations.
These events resulted in an estimated 78% decrease in the lending market’s size, with CeFi lending experiencing an 82% reduction in outstanding loans.
While the overall value of the crypto lending sector has not yet returned to its previous peaks, certain indicators suggest a robust recovery in DeFi lending.
### DeFi Borrowing Soars Nearly Tenfold
The crypto lending market hit its lowest point with $1.8 billion in open borrowings during the bear market in Q4 2022.
Since then, open borrowings in the DeFi sector surged to $19.1 billion across 20 lending platforms and 12 different blockchains by the end of 2024, marking a staggering 959% increase over the two years since the market’s minimum.
“The recovery in DeFi borrowing has outpaced that of CeFi lending,” the research analyst observed, emphasizing that this success is linked to the open nature of blockchain applications and the resilience of lending platforms throughout the market’s tumultuous period that impacted major CeFi lenders.
He further pointed out, “Unlike the largest CeFi lenders that went bankrupt and ceased operations, many of the leading lending platforms managed to stay operational and continue providing services.”
Currently, outstanding borrowings in the CeFi sector total $11.2 billion, reflecting a 68% decrease compared to the peak combined value of $34.8 billion among CeFi lenders in 2022.
The three major players in CeFi lending—Tether, Galaxy, and Ledn—hold a significant portion of the market, accounting for 88.6% of the total CeFi lending landscape and about 27% of the overall crypto lending market.