A latest Galaxy report highlighted that regardless of Tether main the crypto lending market with two different corporations, decentralized functions posted practically double the quantity in excellent loans on the finish of 2024.
Based on the report, the crypto lending market stood at roughly $30 billion on Dec. 31, excluding collateralized debt place (CDP) stablecoins.
This exclusion offers a clearer view of the crypto lending market. The report famous that some overlap could exist between the overall dimension of centralized finance (CeFi) mortgage books and the availability of CDP stablecoins.
The reason being that particular CeFi lenders use crypto collateral to mint CDP stablecoins, that are then lent to off-chain debtors, creating the potential for double-counting.
Including CDP stablecoins enlarges the market dimension to $36.5 billion. Tether, Galaxy, and Ledn comprised 88.6% of the CeFi lending sector, with a mixed mortgage guide of $9.9 billion. This group represented 27% of the overall crypto lending market, together with CDP stablecoins.
The $36.5 billion market dimension is down 43% from its $64.4 billion peak within the final quarter of 2021. The market contraction is attributed to the collapse of a number of lenders and a broader decline in borrower demand.
CeFi for establishments
CeFi lending consists of three main classes: over-the-counter (OTC) lending, prime brokerage companies, and on-chain personal credit score.
These choices goal institutional debtors with personalized phrases and collateral buildings, typically executed off-chain or by way of hybrid mechanisms.
OTC loans stay widespread amongst accredited traders as a result of their bilateral customization capabilities, together with adjustable loan-to-value ratios and maturity phrases.
Prime brokers supply margin financing tied to a narrower set of digital property and exchange-traded merchandise. On the identical time, on-chain personal credit score permits customers to deploy capital utilizing off-chain credit score agreements by way of on-chain liquidity aggregation.
Though centralized companies supply tailor-made credit score merchandise, their attain has narrowed significantly as a result of heightened counterparty threat and decreased retail belief following high-profile insolvencies between 2022 and 2023.
DeFi lending up 959% since 2022
Open borrows throughout DeFi protocols reached $19.1 billion within the fourth quarter, unfold over 20 lending functions and 12 blockchain networks.
This represents a 959% enhance from the final quarter of 2022, when the DeFi market reached a low of $1.8 billion in open borrows. The report attributes the surge to the resilience of permissionless platforms, cross-chain capital mobility, and the emergence of specialised lending functions.
In contrast to CeFi, DeFi lending allows customers to interact straight with good contracts to borrow and lend property with out intermediaries.
Protocols equivalent to Aave, Compound, and newer cross-chain companies supply real-time transparency, versatile charges, and automatic liquidation mechanisms. DeFi’s modular design permits protocols to adapt to person demand, asset threat, and evolving liquidity circumstances.
This development displays a person desire for trust-minimized infrastructure and the operational stability DeFi protocols demonstrated throughout risky market circumstances.
The report concluded that centralized entities equivalent to Tether are essential in institutional lending. Nevertheless, the accelerating shift towards DeFi platforms displays a broader realignment of capital flows and threat frameworks throughout the crypto financial system.