Galaxy Crypto Lending Market Report: As DeFi Grows 959%, CeFi Still Can't Shake Off the FTX Shadow

Original Title: The State of Crypto Lending

Original Author: Zack Pokorny, Galaxy Digital Researcher

Original Translation: Aiying Compliance

GalaxyResearch released a full year data summary on April 14, 2025, titled "The State of Crypto Lending in 2024." Below is the full report: Lending is an application scenario of cryptocurrency that has found strong market fit both on-chain and off-chain. At the peak of the market, the size of the lending market exceeded $64 billion. The lending market has played a vital role in building a digital asset-based financial ecosystem, allowing users to access liquidity by borrowing against their holdings, enabling deployment in decentralized finance (DeFi), or trading on on-chain and off-chain platforms.

This report explores both on-chain and off-chain cryptocurrency lending markets in two parts: The first part reviews the history of the crypto lending market, market participants, historical sizes (including on-chain and off-chain), and some key moments in this field. The second part delves into the operational mechanisms of some lending products and other leverage sources in both on-chain and off-chain environments, who is utilizing these products, and the risks associated with each product. The report comprehensively presents the landscape of the crypto lending market, unveiling one of the most widely used yet opaque areas in the crypto economy. Importantly, the report provides a rare view of the scale of the off-chain lending market, historically a relatively opaque part of the crypto industry.

I. Key Findings

The overall size of the crypto lending market remains significantly below the peak of the late 2020-2021 crypto bull market. As of Q4 2024, the size of the crypto lending market, including crypto collateralized debt positions (CDPs) stablecoins, was $36.5 billion, a 43% decline from the historical high of $64.4 billion recorded in Q4 2021. This decline can be attributed to a breakdown in lending supply-side and a contraction in funding, individual, and corporate demand on the demand side.

As of Q4 2024, the total size of the crypto lending market is $36.5 billion, with the top 3 Centralized Finance (CeFi) lending institutions being Tether, Galaxy, and Ledn. These three companies had a combined loan book size of $9.9 billion at the end of Q4 2024, accounting for 88.6% of the CeFi lending market (Tether alone having approximately 73% at $8.2 billion), with the market size composition as follows:

· Centralized Finance (CeFi) Lending: $112 billion,

· Decentralized Finance (DeFi) Lending: $191 billion

· Crypto Asset Collateralized Debt Position (CDP) Stablecoins: $62 billion

Since the cryptocurrency market bear market low point in the fourth quarter of 2022 (with an on-chain lending scale of $18 billion), on-chain lending applications have experienced strong growth. As of the fourth quarter of 2024, the total lending volume for 20 lending applications and 12 blockchains is $191 billion. This means that over eight quarters, DeFi lending has grown by 959%.

II. Market Overview

The provision of crypto lending services is mainly through two channels: Decentralized Finance (DeFi) and Centralized Finance (CeFi). Each of these has its own unique characteristics and products. Here is a brief overview of CeFi and DeFi lending services:

1. Centralized Finance (CeFi)

CeFi is the provision of cryptocurrency and related asset lending services by centralized off-chain financial companies. Some CeFi entities utilize on-chain infrastructure, or their entire business is built on-chain. CeFi lending can broadly be divided into three categories:

a. Over-the-Counter (OTC) Trading

OTC trading is provided by centralized institutions, offering a range of customized lending solutions and products. OTC trading is bilateral, allowing personalized agreements between the lending parties, with loan terms including interest rates, tenures, and loan-to-value ratios (LTV). These products are usually aimed at qualified investors and institutions.

b. Prime Brokerage

Prime brokerage platforms offer margin financing, trade execution, and custody services. Users can withdraw margin financing from prime brokers for use elsewhere or on the platform for trading activities. Prime brokers typically provide limited financing for crypto assets and crypto ETFs.

c. On-Chain Private Credit

Allows users to aggregate funds on-chain and deploy them through off-chain protocols and accounts. In this model, the underlying blockchain effectively becomes a crowdfunding and accounting platform to meet off-chain credit needs. Debts are usually tokenized, either as collateralized debt position (CDP) stablecoins or directly tokenized through tokens representing debt pool shares. The use of funds is usually more limited.

2. Decentralized Finance (DeFi)

DeFi is an application driven by smart contracts, running on the blockchain, allowing users to borrow against cryptocurrency collateral, lend to earn interest, or use leverage in trading. DeFi lending and borrowing have the following notable characteristics: operates 24/7, offers a wide range of borrowable and collateral assets, and is fully transparent, allowing anyone to perform audits. Lending applications, collateralized debt positions stablecoins, and decentralized exchanges all enable users to access leverage on-chain.

a. Lending Applications

These on-chain applications allow users to deposit collateral assets (such as Bitcoin and Ethereum) to borrow other cryptocurrencies. Loan terms are predefined by the application through risk assessment and adjust based on the collateral asset provided and the borrowed asset. On-chain lending and borrowing are similar to traditional overcollateralized lending.

b. Collateralized Debt Position Stablecoin

These stablecoins are backed by individual cryptocurrencies or a basket of cryptocurrencies, overcollateralized. The principle is similar to overcollateralized lending and borrowing, but the collateral deposited by users mints synthetic assets.

c. Decentralized Exchange

Some decentralized exchanges allow users to access leverage to amplify their trading positions. Although the functionalities of decentralized exchanges vary, the role of providing leverage is similar to CeFi prime brokers. Leverage funds are usually non-transferable from decentralized exchanges, but they serve a similar function as CeFi's financing services.

III. Market Development and History

The following figure shows the key historical participants in the CeFi and DeFi crypto lending market. In 2022 and 2023, as cryptocurrency prices fell and market liquidity dried up, many major CeFi lending platforms collapsed, notably Genesis, Celsius Network, BlockFi, and Voyager filing for bankruptcy in these two years. This led to an estimated 78% contraction in both the CeFi and DeFi lending markets from the 2022 peak to the bear market trough, with open lending in CeFi decreasing by 82%. The next section will delve into the historical evolution and scale of the crypto lending market.

The table below compares some of the largest historical CeFi crypto lending institutions. Some of the listed companies offer various services to investors, such as Coinbase, which, although primarily operating as a cryptocurrency exchange, provides credit services to investors through over-the-counter (OTC) cryptocurrency loans and margin financing.

IV. History of Crypto Lending

Although on-chain and off-chain crypto lending did not see widespread adoption until the end of 2019/early 2020, some key current and historical players were established as early as 2012. Notably, Genesis was founded in 2013, with its loan book peaking at $14.6 billion. On-chain lending and CDP stablecoin giants like Aave, Sky (formerly MakerDAO), and Compound Finance were launched on the Ethereum platform between 2017 and 2018. The emergence of these on-chain lending/borrowing solutions was made possible by the advent of Ethereum and its smart contracts, with Ethereum smart contracts officially going live in July 2015.

The end of the 2020-2021 crypto bull market marked the beginning of a turbulent 18-month period for the crypto lending market, during which the market was plagued by insolvency events. Some major events that occurred during this time include: Terra's stablecoin UST decoupling, eventually becoming worthless alongside LUNA; Ethereum's largest liquidity staking token (LST) stETH decoupling; and Grayscale's Bitcoin Trust Fund (GBTC) transitioning from years of trading at a premium to trading at a discount to Net Asset Value (NAV).

V. Market Size

The total size of the DeFi and CeFi crypto lending markets remains significantly below the peak levels seen in the first quarter of 2022 (based on end-of-quarter data). This is primarily due to the lackluster recovery of the CeFi lending market post the 2022 bear market, as well as the collapse of the largest lenders and borrowers in the market. The following analysis looks at the size of the crypto lending market from the perspective of CeFi and on-chain platforms.

During the market peak, Galaxy Research estimated that the total loan book size of CeFi lending platforms with available data was $34.8 billion, while at market trough, the size of the CeFi lending market dropped to $6.4 billion (an 82% decrease). By the end of the fourth quarter of 2024, the total size of the CeFi lending market was $11.2 billion, a 68% drop from its all-time high but a 73% increase from the bear market low.

With the contraction of the CeFi lending market over the past three years, the amount of outstanding loans has become concentrated on fewer lending platforms. During the peak of the CeFi lending market in the first quarter of 2022, the top three lending platforms (Genesis, BlockFi, and Celsius) held 76% of the market, collectively holding $26.4 billion of the $34.8 billion in loans. Today, the top three lending platforms (Tether, Galaxy, and Ledn) still maintain an 89% market share. The chart above shows Tether accounts for approximately 73% of that.

When assessing the market dominance of one lending platform over another, it is important to consider the differences between each platform, as not all CeFi lending platforms are the same. Some platforms only offer certain types of loans (e.g., loans secured only by Bitcoin, products limited to altcoin collateral, or cash loans excluding stablecoins), cater to specific types of clients (e.g., institutional clients vs. retail clients), and operate only in specific jurisdictions. It is the combination of these factors that allows certain lending platforms to scale larger than others.

As shown in the chart below, on-chain applications (such as Aave and Compound) saw robust growth through DeFi lending, rebounding from an $18 billion outstanding loan low at the bear market bottom to a total of $191 billion across 20 lending apps and 12 on-chain outstanding loans by the end of Q4 2024. This represents a 959% growth in DeFi lending over the past eight quarters from the bottom. By the end of Q4 2024, the total outstanding loan amount in on-chain lending applications had grown by 18% from the historical high of $16.2 billion during the 2020-2021 bull market.

The recovery pace of DeFi lending has been faster than that of CeFi lending. This can be attributed to the permissionless nature of blockchain-based applications, with DeFi lending apps surviving the bear market turbulence while many major CeFi lending platforms declared bankruptcy and ceased operations. Unlike those CeFi lending platforms that went bankrupt and ceased operations, many DeFi lending apps and markets were not forced to shut down and continue to operate. This fact demonstrates the design and risk management practices of large-scale on-chain lending applications, as well as the advantages of algorithmic, overcollateralized, and demand-based lending models.

Excluding the CDP stablecoin market cap collateralized by crypto, the crypto lending market peaked at $48.4 billion in outstanding loans in Q4 2021. After four quarters, it hit a low of $9.6 billion in Q4 2022, marking an 80% decline from the peak. Since then, the market has expanded to $30.2 billion, primarily driven by the growth of DeFi lending apps, a 214% increase from the historical low point in Q4 2024.

It is important to note there may be a potential double-counting issue between the CeFi lending book size and the DeFi borrowing figures. This is because some CeFi platforms rely on DeFi lending apps to provide loans to their off-chain clients. For example, suppose a CeFi platform may borrow USDC on-chain using idle Bitcoin and then lend the same USDC to off-chain clients. In this scenario, the CeFi platform's on-chain borrowing would appear both in DeFi's outstanding loans and in the platform's financial statements as outstanding loans to its clients. Due to a lack of disclosure and clear attribution on-chain, filtering out this double-counting is very challenging.

A notable shift in the crypto lending market is that DeFi lending applications demonstrated stronger dominance than CeFi platforms during the bear market and continued to expand during the market recovery. During the bull market cycle of 2020-2021, excluding market capitalization of crypto-collateralized CDP stablecoins, DeFi lending applications accounted for only 34% of the total crypto borrowing, whereas by the fourth quarter of 2024, DeFi lending applications' market share had increased to 63%, nearly doubling its original share.

Including the market capitalization of crypto-collateralized CDP stablecoins, the total size of the entire crypto lending market surpassed $6.44 billion in the fourth quarter of 2021. During the bear market bottom in the third quarter of 2023, the market size was only $1.42 billion, a 78% decrease from the peak of the bull market. By the fourth quarter of 2024, the market had rebounded 157% from the third quarter of 2023 low, reaching a total size of $3.65 billion.

It is worth noting that similar to borrowing through DeFi lending applications, there may also be a double-counting issue between the book size of CeFi loans and the supply of CDP stablecoins. This is because some CeFi entities rely on minting crypto-collateralized CDP stablecoins to provide borrowing services to off-chain customers.

When including crypto-collateralized CDP stablecoins, a significant growth in on-chain lending and borrowing market share can be observed. By the fourth quarter of 2024, DeFi lending applications and CDP stablecoins occupied 69% of the entire market. Since the fourth quarter of 2022, their share has been steadily increasing. A noteworthy trend is the gradual decline in the dominance of CDP stablecoins as collateral leverage in the crypto market. This can be partially attributed to increased stablecoin liquidity, improvements in lending application parameters, and the introduction of neutral stablecoins like Ethena.

Six, Market Data Logic and Sources

The table below shows the sources and logic used to compile the aforementioned DeFi and CeFi lending market data. While data for DeFi and cDeFi can be retrieved through on-chain data, which is transparent and easily accessible, obtaining CeFi data is more complex and less available. This is due to inconsistencies in how CeFi lending platforms record outstanding loans, differences in the frequency of their public disclosures, and the general difficulty in accessing their information.

7. Venture Capital and Crypto Lending

CeFi and DeFi lending/credit platforms raised a total of $16.3 billion through 89 transactions conducted between the first quarter of 2022 and the fourth quarter of 2024. Among these transactions, the second quarter of 2022 saw the highest capital raise, with eight transactions collectively raising at least $5.02 billion. The fourth quarter of 2023 was the lowest, with a total fundraising of only $2.2 million.

For the crypto economy, venture capital investment in lending and credit applications accounted for only a small portion of total investment. From the first quarter of 2022 to the fourth quarter of 2024, lending and credit applications averaged only 2.8% of venture capital funding each quarter. Lending and credit applications had their largest share of total quarterly funding in the fourth quarter of 2022, at 9.75%; however, in the most recent fourth quarter of 2024, this share was only 0.62%.

8. Historical Review and Future Outlook of the Crypto Lending Market

Root Causes

The core reasons for the collapse of the crypto lending market in 2022-2023 include:

1. Asset Price Plummet:

Except for Bitcoin and mainstream stablecoins, the total crypto market cap shrank by 77% (approximately $1.3 trillion), with the Terra ecosystem (UST and LUNA) losing $57.7 billion. Collateral values plummeted, leading to liquidity crises and debt defaults.

2. Toxic Collaterals:

stETH and GBTC: Due to the inability to redeem underlying assets, illiquidity caused significant discounts in trading (stETH at a 6.25% discount, GBTC at a 48.9% discount). Miner collateral: With Bitcoin's price drop compounded by increased mining difficulty, miner revenues fell by 86%, causing collateral values to shrink by 85-91%, and some miners were unable to liquidate their assets.

3. Risk Management Failures:

Liquidity Mismatch: CeFi platforms engaged in long-term lending but relied on short-term funds, leaving them unable to withstand runs during market collapses. Unsecured Loans Proliferation: Examples include Celsius with 36.6% of loans being uncollateralized and BlockFi providing uncollateralized loans to FTX. Risk Controls Absence: Lack of standardized risk assessments, lax loan approvals, and some platforms lacking risk limits.

9. Future Trends

1. The Institutionalization of CeFi Lending:

Traditional financial institutions (such as Cantor Fitzgerald, banks) will enter the space, leveraging low-cost funds and regulatory loosening (such as the SEC's repeal of SAB-121) to expand services. Bitcoin ETFs will drive leverage trading growth as collateral.

2. Rise of On-Chain Private Credit:

Tokenized debt instruments enhance transparency, reduce management costs, and attract venture capital. Use cases expand to include on-chain collateral, CDP stablecoin minting, etc.

3. The Institutionalization and Innovation of DeFi:

Institutions are accelerating their adoption of DeFi due to regulatory clarity improvements and on-chain liquidity advantages. Centralized companies are building on DeFi protocols (such as Ondo Finance forking Compound), driving on-chain ecosystem integration.

10. Conclusion

Market Differentiation: DeFi has shown resilience in a bear market, increasing its market share from 34% to 63%, strengthening its dominant position. CeFi sees institutional entry or recovery, but concentration remains high (top three platforms hold 89%).

Risks and Opportunities Coexist: Traditional financial entry brings compliance and liquidity, but beware of collateral volatility and regulatory uncertainty.

The On-Chain Future: Tokenization, automated risk management, and institutional participation will drive cryptographic lending towards transparency and scalability, becoming a core component of the digital financial infrastructure.

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