The crypto lending market is rebounding from its 2022 crash, with decentralized platforms leading the charge while centralized players struggle to regain lost ground.
The finding comes from
Galaxy, which creates custom centralized finance and decentralized finance products for investors, trading firms, hedge funds and other institutional clients, said in the report that decentralized platforms (DeFi) have led the rebound.
As the name suggests, centralized platform lending or CeFi lending involves centralized institutions — trading firms, exchanges or crypto banks — that manage custody, vet users, and set loan terms. These lenders often operate behind closed systems, requiring trust in the platform and its risk management.
DeFi lending, by contrast, uses smart contracts to automate borrowing and lending on public blockchains. Protocols like Aave, Compound, and MakerDAO allow anyone with a crypto wallet to participate, and loans are typically overcollateralized, with users locking crypto assets to borrow stablecoins or other tokens.
DeFi leads market growth
In the fourth quarter of 2024, the total value of centralized and decentralized crypto loans was $36.5 billion, with decentralized platforms representing more than 60% of that lending at $19.1 billion. Galaxy emphasized what it described as the "permissionless nature" of DeFi lending as a key factor driving the market's growth. The firm said the largest on-chain lending applications continued to function even during a market downturn in 2022 that affected some centralized platforms.
Galaxy attributes the resilience of DeFi lending to blockchain-based applications, contrasting it with centralized lenders such as Genesis, Celsius Network, BlockFi and Voyager, which faced liquidity crises and bankruptcies.
"Unlike the largest [centralized finance] lenders that went bankrupt and no longer operate, the largest lending applications and markets were not all forced to close and continued to function," reads the Galaxy report. "This fact is a testament to the design and risk management practices of the large on-chain lending apps and the benefits of algorithmic, overcollateralized, and supply / demand-based borrowing."
By Q4 2024, DeFi lending applications accounted for 63% of total crypto lending, up from a previous high of 34% in 2021. This shift marks a growing preference for on-chain solutions amid broader market uncertainty, according to Galaxy.
The crypto lending collapse of 2022
The $36.5 billion of crypto lending in 2024 Q4 is a far cry from the market's peak of $64.4 billion in late 2021, shortly before the fall of FTX brought down Genesis Global Capital, whose bankruptcy in 2023 triggered a cascade of collapses in the crypto lending market.
As part of a lawsuit brought by New York Attorney General Letitia James last year, regulators alleged that Genesis, Gemini and Digital Currency Group concealed over $1 billion in losses. The fallout affected hundreds of thousands of users, including about 29,000 in New York. Gemini ultimately returned more than $50 million to investors and terminated its Earn program.
That collapse was preceded by two actions by the Securities and Exchange Commission (SEC) against other crypto lenders. On September 7, 2021, Coinbase disclosed that it had received a notice from the SEC that the commission had concluded that a crypto lending program the company had announced was a security, so Coinbase would be in violation of federal securities laws if it proceeded. Facing the threat of enforcement, Coinbase terminated the program.
Similarly, in February 2022, the SEC charged and settled with BlockFi Lending over the company's alleged failure to register the offers and sales of its retail crypto lending product, BlockFi Interest Accounts (BIAs), as a security. BlockFi agreed to pay a $50 million penalty to the SEC and cease its unregistered offers and sales.
Since these developments, Tether has become the dominant player in the market of centralized platforms offering crypto lending, by a large margin. In Q4 2024, it accounted for more than 70% of the centralized platform lending market, far outpacing competitors. The next largest platform, Galaxy, had less than 10%, according to the platform's report.
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