DeFi Lending Surpasses CeFi in Recovery and Growth Momentum

The digital asset lending market has entered a new phase of maturity in 2025, with DeFi (Decentralized Finance) protocols outpacing CeFi (Centralized Finance) platforms in both recovery and growth. This shift reflects broader structural changes in how investors and institutions perceive risk, transparency, and scalability in crypto finance.

The Resurgence of DeFi Lending

DeFi lending has surged to a total value locked (TVL) of $26.47 billion as of June 2025, a 42.11% quarterly increase [1]. This growth is driven by platforms like Aave, which alone secured $25.41 billion in TVL by May 2025 [2], and Lido, which has become a critical liquidity hub. The resilience of DeFi is further underscored by its ability to mitigate security risks: while 92 breaches were reported in 2025, losses totaled $470 million—far below the $1.9 billion lost in CeFi incidents [1].

Regulatory clarity has also bolstered DeFi’s appeal. The EU’s Markets in Crypto-Assets (MiCA) framework and the U.S. Project Crypto initiative have reduced compliance friction, attracting traditional financial institutions to DeFi’s open-source infrastructure [1]. This institutional adoption is evident in the rise of DATCOs (Digital Asset Treasury Companies) and ETF-related borrowing, which are projected to contribute $12.74 billion and $3–$6 billion to the market by mid-2026 [4].

CeFi’s Struggles and Hybrid Models

CeFi lending, while recovering, remains constrained by its custodial model. As of June 2025, its TVL stood at $17.78 billion, a 14.66% quarterly growth [1], but this pales against DeFi’s momentum. CeFi’s loan book, which peaked at $34.8 billion in 2022, has since declined by 82% to $11.2 billion by late 2024 [1]. Platforms like Tether, Galaxy, and Ledn now dominate 89% of the CeFi market [3], but their reliance on centralized trust models has limited scalability.

However, CeFi is not without innovation. Hybrid models are emerging, with CeFi platforms integrating DeFi applications for liquidity. For example, Tether’s $10.14 billion in open loans [1] leverages DeFi’s composability to enhance operational efficiency. Yet, these models often prioritize user-friendly convenience over the non-custodial transparency that DeFi offers, catering to smaller retail allocations [3].

Long-Term Investment Viability

The long-term viability of DeFi lending protocols hinges on their ability to balance innovation with security. While DeFi’s 59.83% dominance in the lending space as of Q2 2025 [1] is impressive, challenges remain. Active Ethereum user numbers have declined by 27% since May 2021 [4], suggesting much of the growth is driven by looping strategies rather than broad adoption. Investors must weigh this against DeFi’s utility-focused lending and stable returns, which are reshaping the financial infrastructure [4].

For CeFi, the path forward requires addressing systemic risks. Its custodial model, while familiar to traditional investors, is vulnerable to regulatory scrutiny and operational failures. The 2022 collapse of major CeFi entities has left a lingering caution, with institutional capital increasingly favoring DeFi’s auditable smart contracts [1].

Conclusion

The digital asset lending market is projected to reach $75 billion by mid-2026 [4], with DeFi protocols leading the charge. For investors, the choice between DeFi and CeFi depends on risk tolerance and strategic goals. DeFi’s non-custodial nature, regulatory tailwinds, and institutional adoption make it a compelling long-term bet, while CeFi’s hybrid models offer transitional opportunities. However, the data clearly indicates that DeFi’s growth trajectory is more aligned with the decentralized future of finance.

Source:
[1] DeFi vs CeFi 2025: Why Smart Money Picks DeFi Despite Risk [https://mooloo.net/articles/news/defi-vs-cefi-2025-why-smart-money-picks-defi-despite-risk/]
[2] Blockchain Statistics & Facts 2025 [https://www.tekrevol.com/blogs/blockchain-statistics-facts/]
[3] CeFi Loans Growth: Key Trends, Market Dynamics, and ... [https://www.okx.com/en-us/learn/cefi-loans-growth-trends-dynamics]
[4] Digital Asset Lending Surpasses 2021 Peak with $61.7B ... [https://www.ainvest.com/news/digital-asset-lending-surpasses-2021-peak-61-7b-tvl-june-2025-2508/]