Galaxy Crypto Lending Market Report: While DeFi Grows by 959%, CeFi Still Remains in the Shadow of FTX

Original Title: The State of Crypto Lending

Original Author: Zack Pokorny, Researcher at Galaxy Digital

Original Compilation: Aiying compliance

GalaxyResearch published the full report of "The State of Crypto Lending" on April 14, 2025, summarizing the data for the entire year of 2024: Lending is an application scenario for cryptocurrencies that has found strong market fit both on-chain and off-chain. At the peak of the market, the lending market size once exceeded $64 billion. The lending market plays an important role in building a financial ecosystem based on digital assets, allowing users to obtain liquidity from their held assets through lending, thereby deploying in decentralized finance (DeFi) or trading on on-chain and off-chain platforms.

This report explores the on-chain and off-chain cryptocurrency lending markets, divided into two parts: the first part reviews the history of the crypto lending market, market participants, historical scale (including on-chain and off-chain), and some key moments in the field. The second part provides an in-depth analysis of the operational mechanisms of some lending products and other sources of leverage in both on-chain and off-chain environments, who is using these products, and the risks associated with each product. This report presents a comprehensive view of the crypto lending market, revealing one of the most widely used yet opaque areas in the crypto economy. Most importantly, the report provides a rare perspective on the scale of the off-chain lending market, a historically relatively opaque part of the crypto industry.

I. Key Conclusions

The overall scale of the crypto lending market remains significantly lower than the peak levels at the end of the 2020-2021 crypto bull market. As of the fourth quarter of 2024, the scale of the crypto lending market, including crypto collateralized debt positions (CDPs) stablecoins, was $36.5 billion, a decrease of 43% from the historical peak of $64.4 billion set in the fourth quarter of 2021. This decline can be attributed to the collapse of lenders on the supply side, as well as the contraction of funds, individuals, and enterprises on the demand side.

As of the fourth quarter of 2024, the total scale of the crypto lending market was $36.5 billion, with the top three centralized finance (CeFi) lending institutions being Tether, Galaxy, and Ledn. These three companies had a total loan book size of $9.9 billion at the end of the fourth quarter of 2024, accounting for 88.6% of the CeFi lending market (with Tether accounting for approximately 73% at $8.2 billion). The market size was primarily composed of:

• Centralized Finance (CeFi) Lending: $11.2 billion,
• Decentralized Finance (DeFi) Lending: $19.1 billion,
• Crypto Asset-Backed Collateralized Debt Position (CDP) Stablecoins: $6.2 billion.

Since the low point of the crypto market bear market in the fourth quarter of 2022 (with an on-chain lending scale of $1.8 billion), on-chain lending applications have experienced strong growth. As of the fourth quarter of 2024, the total outstanding loans from 20 lending applications and 12 blockchains amounted to $19.1 billion. This means that DeFi lending has grown by 959% over eight quarters.

II. Market Overview

The provision of crypto lending services primarily occurs through two channels: Decentralized Finance (DeFi) and Centralized Finance (CeFi). Each has its unique characteristics and products offered. Below is a brief overview of CeFi and DeFi lending services:

1. Centralized Finance (CeFi)

CeFi refers to the lending services for cryptocurrencies and related assets provided by centralized off-chain financial companies. Some CeFi entities utilize on-chain infrastructure, or their entire business is built on-chain. CeFi lending can be broadly categorized into three types:

a. Over-the-Counter (OTC)

OTC trading is provided by centralized institutions, offering a range of customized lending solutions and products. OTC transactions are bilateral, allowing the lending parties to reach personalized agreements, with borrowing terms including interest rates, duration, and loan-to-value (LTV) ratios. These products are typically available only to qualified investors and institutions.

b. Prime Brokerage

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

c. On-Chain Private Credit

This allows users to pool funds on-chain and deploy them through off-chain agreements and accounts. In this model, the underlying blockchain effectively becomes a crowdfunding and accounting platform to meet off-chain credit needs. Debt is typically tokenized, either as collateralized debt position (CDP) stablecoins or directly through tokens representing shares of the debt pool. The use of funds is usually quite narrow.

2. Decentralized Finance (DeFi)

DeFi refers to applications driven by smart contracts that run on blockchains, allowing users to borrow against collateral in cryptocurrencies, lend for yield, or use leverage in trading. DeFi lending and borrowing have the following notable characteristics: operating 24/7, offering a wide range of borrowable and collateral assets, and being fully transparent, allowing anyone to audit. Lending applications, collateralized debt position stablecoins, and decentralized trading platforms allow users to obtain 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. The loan terms are pre-set by the application through risk assessment, adjusted based on the collateral and borrowing assets provided by the user. On-chain lending and borrowing are similar to traditional over-collateralized lending.

b. Collateralized Debt Position Stablecoins

These stablecoins are over-collateralized by individual cryptocurrencies or a basket of cryptocurrencies. Their principle is similar to over-collateralized lending and borrowing, but the collateral deposited by users issues synthetic assets.

c. Decentralized Trading Platforms

Some decentralized trading platforms allow users to obtain leverage to amplify trading positions. Although the functionalities of decentralized trading platforms vary, the role of providing leverage is similar to that of CeFi prime brokers. Leverage funds typically cannot be transferred from decentralized trading platforms, but their function is akin to CeFi's financing services.

III. Market Development and History

The following chart shows the main historical participants in the CeFi and DeFi crypto lending markets. In 2022 and 2023, as cryptocurrency prices fell and market liquidity dried up, many of the largest CeFi lending platforms collapsed, particularly Genesis, Celsius Network, BlockFi, and Voyager, which all filed for bankruptcy during these two years. This led to an estimated shrinkage of 78% in the CeFi and DeFi lending markets from the peak in 2022 to the low point of the bear market, with open loans in CeFi lending decreasing by 82%. The following sections will delve into the historical evolution and scale of the crypto lending market.

The following table compares some of the largest historical CeFi crypto lending institutions. Some of the listed companies offer multiple services to investors, such as Coinbase, which primarily operates as a cryptocurrency trading platform but provides credit services to investors through OTC cryptocurrency loans and margin financing.

IV. History of Crypto Lending

Although on-chain and off-chain crypto lending only began to see widespread application at the end of 2019/beginning of 2020, some current and historically significant participants were established as early as 2012. Notably, Genesis was founded in 2013, with its loan book size once reaching as high as $14.6 billion. On-chain lending and CDP stablecoin giants like Aave, Sky (formerly MakerDAO), and Compound Finance 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, which officially launched in July 2015.

The end of the 2020-2021 crypto bull market marked the beginning of a turbulent 18 months for the crypto lending market, during which the market was plagued by bankruptcy events. Several significant incidents during this time included: the decoupling of Terra's stablecoin UST, which ultimately became worthless along with LUNA; the decoupling of Ethereum's largest liquid staking token (LST) stETH; and Grayscale's Bitcoin Trust (GBTC) beginning to trade at a discount to its net asset value (NAV) after years of trading at a premium.

V. Market Size

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

At the market peak, Galaxy Research estimated that the total loan book size of CeFi lending platforms with accessible data was $34.8 billion; at the market low, the size of the CeFi lending market dropped to $6.4 billion (a decrease of 82%). As of the end of the fourth quarter of 2024, the total scale of the CeFi lending market was $11.2 billion, down 68% from the historical peak but up 73% from the bear market low.

As the CeFi lending market has shrunk over the past three years, the number of outstanding loans has 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) accounted for 76% of the market, holding a total of $26.4 billion out of $34.8 billion in loans. Today, the top three lending platforms (Tether, Galaxy, and Ledn) still maintain an 89% market share. As seen in the chart above, Tether accounts for approximately 73%.

When assessing the market dominance of one lending platform compared to another, it is important to note the distinctions between each platform, as not all CeFi lending platforms are the same. Some platforms only offer certain types of loans (e.g., Bitcoin-collateralized loans only, altcoin-collateralized products only, and cash loans excluding stablecoins), serve specific types of clients (e.g., institutional clients versus retail clients), and operate only in specific jurisdictions. It is this combination of 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) have achieved strong growth through DeFi lending, rebounding from a low of $1.8 billion in outstanding loans during the bear market to a total of $19.1 billion in outstanding loans at the end of the fourth quarter of 2024 across 20 lending applications and 12 blockchains. Compared to the bottom, DeFi lending has grown by 959% over the past eight quarters. As of the end of the fourth quarter of 2024, the total outstanding loans from on-chain lending applications have increased by 18% compared to the historical peak of $1.62 billion set during the 2020-2021 bull market.

The recovery speed of DeFi lending has outpaced that of CeFi lending. This can be attributed to the permissionless nature of blockchain-based applications and the fact that, during the turmoil of the bear market, DeFi lending applications continued to survive while many large CeFi lending platforms declared bankruptcy and ceased operations. Unlike those CeFi lending platforms that went bankrupt and stopped operating, many DeFi lending applications and markets were not forced to shut down and continued to operate. This fact demonstrates the design and risk management practices of large on-chain lending applications, as well as the advantages of algorithmic, over-collateralized, and supply-demand-based lending models.

Excluding the market capital of crypto-collateralized CDP stablecoins, the crypto lending market reached a peak of $4.84 billion in outstanding loans in the fourth quarter of 2021. This market hit a low of $960 million in the fourth quarter of 2022, down 80% from the peak. Since then, the total market scale has expanded to $3.02 billion, primarily driven by the expansion of DeFi lending applications, growing 214% from the historical low in the fourth quarter of 2024.

It is important to note that there may be potential double counting issues between the CeFi loan book size and DeFi borrowing. This is because some CeFi platforms rely on DeFi lending applications to provide borrowing services for off-chain clients. For example, a certain CeFi platform may borrow USDC on-chain using idle Bitcoin and then lend the same USDC to off-chain clients. In this case, the on-chain borrowing of that CeFi platform would appear in both the outstanding borrowing of DeFi and in the financial statements of that platform as outstanding borrowing from its clients. Filtering out this double counting is very difficult due to a lack of disclosure and clear attribution on-chain.

A significant change in the crypto lending market is that DeFi lending applications have demonstrated stronger dominance than CeFi platforms during the bear market and continue to expand during the market recovery. During the 2020-2021 bull market cycle, excluding the market capital of crypto-collateralized CDP stablecoins, DeFi lending applications accounted for only 34% of the total crypto borrowing; as of the fourth quarter of 2024, the market share of DeFi lending applications has risen to 63%, nearly doubling its original share.

Including the market capital of crypto-collateralized CDP stablecoins, the total scale of the entire crypto lending market exceeded $64.4 billion in the fourth quarter of 2021. At the low point of the bear market in the third quarter of 2023, the market scale was only $14.2 billion, a decrease of 78% from the bull market peak. As of the fourth quarter of 2024, the market has rebounded 157% from the low point in the third quarter of 2023, reaching a total scale of $36.5 billion.

It is important to note that, similar to borrowing through DeFi lending applications, there may also be double counting issues between the CeFi loan book size and the supply of CDP stablecoins. This is because some CeFi entities rely on minting CDP stablecoins through crypto collateral to provide borrowing services for off-chain clients.

When including crypto-collateralized CDP stablecoins, a noticeable increase in the market share of on-chain lending and borrowing can be observed. As of the fourth quarter of 2024, DeFi lending applications and CDP stablecoins accounted for 69% of the entire market. Since the fourth quarter of 2022, their share has been on a steady upward trend. A noteworthy phenomenon is that the dominance of CDP stablecoins as crypto-collateralized leverage is gradually declining. This can be partly attributed to the increase in stablecoin liquidity, improvements in lending application parameters, and the introduction of neutral stablecoins like Ethena.

VI. Market Data Logic and Sources

The following table presents the sources and logic used to compile the above 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 public information, and the general difficulty in accessing information.

VII. Venture Capital and Crypto Lending

CeFi and DeFi lending/credit application platforms raised a total of $1.63 billion through 89 transactions that occurred between the first quarter of 2022 and the fourth quarter of 2024. Among these transactions, the second quarter of 2022 saw the highest capital raising, with eight transactions raising at least $502 million. The fourth quarter of 2023 was the lowest quarter, with total raised funds of only $2.2 million.

For the crypto economy, venture capital investment in lending and credit applications accounts 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. Lending and credit applications accounted for 9.75% of total quarterly funding in the fourth quarter of 2022, their largest share; while in the recent fourth quarter of 2024, their share was only 0.62%.

VIII. 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 Crash:

With the exception of Bitcoin and mainstream stablecoins, the total crypto market cap shrank by 77% (approximately $1.3 trillion), with the Terra ecosystem (UST and LUNA) evaporating $57.7 billion. The sudden drop in collateral value and liquidity depletion led to debt defaults.

2. Toxic Collateral:

stETH and GBTC: Due to the underlying assets being non-redeemable, poor liquidity led to significant discount trading (stETH at a 6.25% discount, GBTC at a 48.9% discount). Mining machine collateral: The drop in Bitcoin prices combined with rising mining difficulty resulted in mining revenues declining by 86%, with values shrinking by 85-91%, leaving some mining machines unsellable.

3. Risk Management Failures:

Liquidity Mismatch: CeFi platforms lent long-term but relied on short-term funding, unable to cope with runs during the market collapse. Unsecured Loans: For example, 36.6% of Celsius's loans were unsecured, and BlockFi provided unsecured loans to FTX. Lack of Risk Control: There was a lack of standardized risk assessments, lax loan reviews, and some platforms had no risk limits.

IX. Future Trends

1. Institutionalization of CeFi Lending:

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

2. Rise of On-Chain Private Credit:

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

3. Institutionalization and Innovation in DeFi:

Institutions are accelerating the adoption of DeFi due to improved regulatory clarity and on-chain liquidity advantages. Centralized companies are building on DeFi protocols (such as Ondo Finance forking Compound), promoting the integration of on-chain ecosystems.

X. Conclusion

Market Differentiation: DeFi has demonstrated resilience during the bear market, with its share increasing from 34% to 63%, reinforcing its dominant position; CeFi may see institutional entry or recovery, but concentration remains high (the top three platforms account for 89%).

Risks and Opportunities: The entry of traditional finance brings compliance and liquidity, but caution is needed regarding collateral volatility and regulatory uncertainty.

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