Crypto lending remains significantly below its all-time high of $64.4 billion reached in 2021, now standing at $36.5 billion as of Q4 2024, marking a 43% decline according to a Galaxy Digital research report released Monday. The dramatic drop follows several high-profile bankruptcies in the centralized finance sector, though decentralized finance borrowing has shown remarkable recovery.
What to Know:
- The crypto lending market collapsed 78% during the 2022 bear market before recovering partially
- Decentralized finance borrowing has grown nearly 10-fold since market bottom, reaching $19.1 billion
- Three centralized finance lenders now control 88.6% of that market segment
The dramatic decline stems primarily from the collapse of major centralized lenders and reduced activity from institutional participants.
"The decline can be attributed to the decimation of lenders on the supply side and funds, individuals, and corporate entities on the demand side," said Zack Pokorny, research associate at Galaxy Digital.
The crypto lending industry enables borrowers to use digital assets as collateral to secure loans in cryptocurrency or traditional currency. Simultaneously, lenders can earn interest by providing their holdings to borrowers. This core functionality has persisted despite market turbulence.
Beginning in 2022, the market faced unprecedented challenges when major centralized finance platforms including Genesis, Celsius Network, BlockFi and Voyager all filed for bankruptcy within a two-year period as cryptocurrency valuations plummeted. Their collective failure triggered the massive 78% contraction in the overall lending market.
The centralized finance sector was particularly devastated, losing 82% of its open borrows following these bankruptcies.
DeFi's Remarkable Recovery and Current Market Dynamics
While the broader crypto lending ecosystem hasn't regained previous highs, decentralized finance has demonstrated exceptional resilience and growth according to key metrics in the Galaxy Digital report.
The crypto lending market hit rock bottom in Q4 2022, with open borrows falling to just $1.8 billion. However, decentralized finance borrowing has since skyrocketed, reaching $19.1 billion across 20 lending applications and 12 blockchains by the end of 2024. This represents an extraordinary 959% increase over eight quarters from the market's lowest point.
"DeFi borrowing has experienced a stronger recovery than that of CeFi lending," Pokorny wrote in the report. "This can be attributed to the permissionless nature of blockchain-based applications and the survival of lending applications through the bear market chaos that felled major CeFi lenders."
The research highlights a key distinction between centralized and decentralized platforms during the downturn. "Unlike the largest CeFi lenders that went bankrupt and no longer operate, the largest lending applications and markets were not all forced to close and continued to function," Pokorny added.
Centralized finance lending currently accounts for $11.2 billion in outstanding borrows, representing a 68% decrease from its peak of $34.8 billion achieved in 2022. The sector has become increasingly concentrated, with the three largest centralized lenders – Tether, Galaxy and Ledn – now commanding 88.6% of the total CeFi lending market and 27% of the entire crypto lending ecosystem.
Final Thoughts
The crypto lending landscape has undergone significant transformation since its 2021 peak, with decentralized platforms demonstrating greater resilience than their centralized counterparts. While overall market size remains below historical highs, the remarkable growth in DeFi borrowing suggests a shifting paradigm in how digital asset holders access liquidity within the ecosystem.