Crypto Lending: From Highs to Lows and Back Again?
If you’ve been following the crypto lending scene, you’ll realize it’s been a rollercoaster of a ride. The market has shrunk significantly—by over 43%—from its 2021 peak of $64.4 billion, plummeting to $36.5 billion by the tip of 2024. This startling shift was highlighted in a recent report from Galaxy Digital, published on April 14.
The CeFi Decline: A Story of Bankruptcy and Reduced Demand
The downturn began in 2022, triggered by the collapse of several major centralized finance (CeFi) lenders like Genesis, Celsius Network, BlockFi, and Voyager. These firms filed for bankruptcy amid falling crypto prices, which led to a pointy decrease in each the provision and demand for crypto loans. The report paints a grim picture for CeFi lending, which at its peak in 2022 had a combined book size of $34.8 billion. By the tip of 2024, that figure had dwindled to only $11.2 billion—a whopping 68% drop.
According to Zack Pokorny, a research associate at Galaxy Digital, this decline is as a result of the collapse of key lenders on the provision side and reduced interest from funds, individuals, and company entities on the demand side. Many of the centralized lenders that went bankrupt have ceased operations, drastically cutting down the borrowing options available.
DeFi’s Resilience: A Phoenix Rising from the Ashes
Despite the general downturn within the lending market, decentralized finance (DeFi) platforms have shown remarkable resilience and growth. After sinking to a low of $1.8 billion in open borrows throughout the bear market in late 2022, DeFi borrowing rebounded to a formidable $19.1 billion by the tip of 2024. That’s a jaw-dropping 959% increase over eight quarters!
What’s driving this recovery? The report credits the permissionless nature of DeFi platforms. Unlike their CeFi counterparts, which shut down throughout the financial turbulence, DeFi platforms remained operational. Pokorny notes, “While the largest CeFi lenders went bankrupt, DeFi platforms continued to function, unscathed by the centralized sector’s woes.”
The Shifting Landscape of Crypto Lending
Today, DeFi lending spans 20 different lending applications across 12 blockchains, showing it has retained user interest even through rocky market periods. In contrast, the CeFi sector has change into way more concentrated. Just three firms—Tether, Galaxy, and Ledn—now hold 88.6% of all remaining CeFi lending and account for 27% of the whole crypto lending market.
Though the general market hasn’t bounced back to its former glory, the robust performance of DeFi lending signals a shift within the crypto borrowing landscape. The report underscores that while CeFi has contracted sharply, DeFi platforms haven’t only bounced back but proceed to expand, indicating a persistent demand for decentralized financial services.
Looking forward, it seems the longer term of crypto lending could be decentralized.
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