Crypto Lending Market Shrinks 43% as CeFi Collapses, DeFi Borrowing Surges 959%

The crypto lending market has experienced a significant downturn, with its size decreasing by 43% from its peak of $64.4 billion in 2021 to $36.5 billion by the end of the fourth quarter of 2024. This decline is largely attributed to the collapse of major centralized finance (CeFi) lenders such as Genesis, Celsius Network, BlockFi, and Voyager, which filed for bankruptcy in 2022 as crypto valuations plummeted. The collective downfall of these lenders resulted in an estimated 78% collapse in the size of the lending market, with CeFi lending losing 82% of its open borrows.

Despite the overall decline in the crypto lending market, decentralized finance (DeFi) borrowing has shown a remarkable recovery. DeFi open borrows surged by 959% from the bear market bottom, reaching $19.1 billion across 20 lending applications and 12 blockchains by the end of 2024. This recovery is attributed to the permissionless nature of blockchain-based applications and the resilience of DeFi lending platforms, which continued to function despite the bear market chaos that led to the collapse of major CeFi lenders.

The decline in the crypto lending market began in 2022, with the market finding its bottom at $1.8 billion in open borrows during the fourth quarter of that year. However, the recovery of DeFi borrowing has been notable, with the market experiencing a stronger recovery than CeFi lending. This is evident in the fact that outstanding CeFi borrows are worth a collective $11.2 billion, which is 68% lower compared to the peak $34.8 billion combined book size of the CeFi lenders achieved in 2022.

The three largest CeFi lenders, Tether, Galaxy, and Ledn, account for a combined 88.6% of the total CeFi lending market and 27% of the total crypto lending market. This concentration of market share among a few major players highlights the significant impact that the collapse of these lenders had on the overall market. The resilience of DeFi lending platforms, which continued to function despite the bear market, has been a key factor in the recovery of the crypto lending market.

Crypto lending enables borrowers to use their crypto holdings as collateral to obtain a crypto or fiat loan, while lenders can loan their holdings to generate interest. The decline in the crypto lending market can be attributed to the decimation of lenders on the supply side and funds, individuals, and corporate entities on the demand side. The collapse of major CeFi lenders in 2022 led to a significant reduction in the size of the lending market, with CeFi lending losing 82% of its open borrows. However, the recovery of DeFi borrowing has been notable, with the market experiencing a stronger recovery than CeFi lending. This is evident in the fact that outstanding CeFi borrows are worth a collective $11.2 billion, which is 68% lower compared to the peak $34.8 billion combined book size of the CeFi lenders achieved in 2022.