In lending, decentralized finance (DeFi) lending platforms have overtaken decentralized finance (CeFi) platforms. By end of 2024, DeFi platforms will have at least 2x more in outstanding loans versus CeFi. In the Q4, open borrows on all DeFi protocols jumped to $19.1 billion. This remarkable number eclipsed the $11 billion in revenue generated by centralized platforms. This is a major step for the crypto lending market, and it demonstrates increasing faith in the decentralized ecosystem of finance.
The total value of the crypto lending market, not counting CDP stablecoins, was about $30 billion as of 12/31. When you add in the new category of CDP stablecoins (those backed by collateral), the market grows to $36.5 billion. Even with a technical breakout such as that described above, the market overall is still down. It’s down 43% from its high of $64.4 billion in Q4 2021. This contraction is mostly the result of the failure of a number of lenders and a national drop in borrower demand.
DeFi Lending on the Rise
The DeFi market is at a low point with open borrows, $1.8 billion, now at hope in the last quarter of 2022. In the intervening time, the market has made significant strides. User adoption and spark plug innovation in the decentralized finance space have provided much of this jet fuel. Today, there are 20 lending applications running on 12 different blockchain protocols, proving the decentralized and cross-chain nature of DeFi lending. This is in sharp contrast to the more focused CeFi market.
DeFi’s boom signals a clear mass demand for transparency, self-custody, and permissionless access to financial services. The ability to directly engage in lending and borrowing activities without intermediaries has been an attractive proposition to millions of crypto users. The next section looks at risk management within the rapidly-growing DeFi lending space. This tremendous growth has skyrocketed Solana, determining it as a key participant in the macro crypto market.
CeFi Lending Market Overview
Unlike the trustless and decentralized nature of DeFi, CeFi lending is much more centralized. Combined loan book Total loan book Tether, Galaxy and Ledn together make up 88.6% of the CeFi lending sector with a combined loan book of $9.9 billion. CeFi lending encompasses three primary categories: OTC lending, prime brokerage services, and on-chain private credit.
Also, note that CeFi loan books do not need to be collateralized like CDP stablecoins. This can have serious implications for the eventual regulatory dynamics of the whole financial services landscape. The CeFi lending market is in disarray, even with a handful of major players mostly running the show. Those challenges have largely fueled a correction in the now much-contracted market. The increasing concentration of the industry’s risk within a much smaller number of institutions has led to serious doubts about this state of systemic stability.
Tether's Dominance
Tether leads the crypto lending market. While specific figures for Tether's lending activities are not detailed in the provided information, its prominent position suggests a significant influence on the market's overall dynamics. As the largest dollar-pegged stablecoin issuer, Tether’s involvement in crypto lending is part of the company’s larger role in the crypto ecosystem.
DeFi lending is quickly catching up, as CeFi platforms falter on multiple fronts. These two currents together make for a more promising future for the crypto finance world. These decentralized solutions are maturing and starting to achieve broader adoption. In the process, they stand to take a big bite out of traditional centralized lenders’ market share. The separation of DeFi and CeFi is unfolding before our eyes today. This change will be hugely impactful in determining the future of crypto lending and the whole digital asset marketplace.
