DeFi Lending Protocols Surge 43% to $53.6 Billion TVL, Outpacing DEXs

DeFi lending protocols have seen a significant surge in total value locked (TVL), outpacing decentralized exchanges (DEXs) due to more sustainable yield offerings. As of the latest data, DeFi lending protocols hold $53.6 billion in TVL, representing 43% of the $124.6 billion locked across all DeFi protocols. This figure not only leads the DeFi vertical but also surpasses liquid staking.

Multichain lending protocol Aave is a standout in this sector, holding $25 billion of locked value, which accounts for nearly half of the DeFi lending market. In contrast, DEXs, which once held nearly double the TVL of their closest competitor, have seen a dramatic decline from $85.3 billion in November 2021 to $21.5 billion today.

The founder of a crypto fund, Henrik Andersson, attributes the rise in DeFi lending and the fall in dex TVL to the sustainability of yield in lending protocols. He argues that lending is the "only sustainable way to produce yield" in DeFi, as DEX liquidity pooling has largely become unprofitable due to impermanent loss. Additionally, the more capital-efficient design of industry-leading DEX Uniswap v3 may have contributed to the DEX TVL fall, as liquidity providers can now earn more rewards with less upfront capital.

Andersson also points out that the rise of intent-based swaps, a relatively new crosschain trading mechanism, may have further reduced the DEX TVL. Market makers typically source liquidity from centralized exchanges to facilitate these swaps, which could be a factor in the decline of DEX TVL.

Ask Aime: What's the future of DeFi lending protocols?

DeFi lending protocols like Aave and Compound Finance enable crypto users to lend assets to earn interest or borrow against collateral. Smart contracts manage deposits, loans, and interest rates to ensure trustless transactions. For example, DeFi users who supply Ether (ETH) and Tether (USDT) on Aave currently earn an annual percentage yield of 1.86% and 3.17%, respectively. While providing stablecoins and Ether to DEX pools such as Uniswap’s can offer higher rewards, these rewards are far less sustainable and fluctuate daily.

DeFi-based crypto lending has dominated the centralized finance (CeFi) lending market, accounting for around 65% of the total market by the end of 2024. This dominance has been maintained or increased against centralized lenders every quarter since Q4 2022. The fall in CeFi lending started around the time several centralized crypto lenders such as Genesis, Celsius Network, BlockFi, and Voyager filed for bankruptcy, causing a massive drop in TVL. The collective downfall of these lenders led to an estimated 78% collapse in the size of the crypto lending market from the 2022 peak to the bear market trough.

However, it was DeFi lending protocols that led the resurgence in crypto lending activity, with a near 960% increase in DeFi open borrows between Q4 2022 and Q4 2024. This strong recovery is a testament to the design and risk management practices adopted by DeFi lending protocols, showcasing the benefits of algorithmic, overcollateralized, and supply-and-demand-driven borrowing models. Increased institutional participation and clearer regulations are expected to drive the next wave of crypto lending adoption.