DeFi Leads the Crypto Lending Comeback, Outpacing CeFi in Post-Bear Market Recovery
Decentralized Finance (DeFi) is emerging as the clear leader in the resurgence of the crypto lending market, outpacing Centralized Finance (CeFi) counterparts in a rebound from the sector’s severe post-2022 downturn, according to a new report by Galaxy Digital.
The report paints a cautiously optimistic picture for crypto lending overall. Both DeFi and CeFi have shown signs of recovery after a brutal bear market that led to the collapse of major CeFi lenders such as Celsius, Genesis, and BlockFi. These failures not only wiped out billions in capital but also eroded investor confidence in centralized platforms.
CeFi Shows Signs of Life—but Still Trails
Galaxy Digital's data reveals that outstanding CeFi borrowings rose to $11.2 billion by Q4 2024, marking a 73% increase from the bear market low of $6.4 billion. However, this is still far from its all-time high of $34.8 billion, indicating the market has shrunk by 68% since its peak.
The landscape of CeFi lending has also changed significantly. The market is now dominated by just three players—Tether, Galaxy, and Ledn—who collectively control 89% of the market, up from 75% in 2022. This consolidation reflects both the loss of key players and a more cautious lending environment.
A major reason for CeFi’s lagging recovery is its regulatory exposure, especially in the United States. Since 2022, most CeFi firms have refrained from offering yield products to U.S. clients due to heightened scrutiny, a constraint not typically faced by DeFi protocols.
DeFi Surges Ahead with Resilience and Growth
In contrast, DeFi platforms have not only weathered the storm—they’ve flourished. Lending apps like Aave (AAVE) and Compound (COMP), which continued operations uninterrupted through the bear market, have been central to DeFi's momentum.
By Q4 2024, DeFi lending accounted for 63% of the market, up from 34% during the 2020–2021 bull run. Open DeFi borrows surged to $19.1 billion, spanning 20 applications across 12 blockchains, reflecting an astonishing 959% growth from their bear market bottom of $1.8 billion in Q4 2022.
Moreover, DeFi borrowing has now exceeded its previous bull market peak by 18%, indicating a true market resurgence—not just a rebound. Excluding CDP-based stablecoins, the entire crypto lending sector recovered by 214% from Q4 2022 to Q4 2024, largely fueled by DeFi growth.
Galaxy Digital attributes this success to DeFi's permissionless architecture, risk transparency, and decentralized governance. Unlike centralized entities, DeFi protocols often operate without Know-Your-Customer (KYC) requirements, providing easier global access to crypto lending services.