It wasn’t long ago that the landscape of crypto lending appeared bleak, marred by the collapse of prominent firms like BlockFi, Celsius, Voyager, and Genesis during the tumultuous period of 2022-2023. This downturn resulted in a staggering loss of $25 billion in loans and severely damaged the sector’s reputation. However, a recent analysis by Galaxy Digital indicates signs of recovery, spearheaded by a familiar group of resilient players. Tether, Galaxy, and Ledn have emerged as the leading forces in centralized finance (CeFi) lending, collectively managing a notable $9.9 billion in outstanding loans by the conclusion of 2024. According to Galaxy’s research associate Zack Pokorny, this trio now represents almost 90% of the CeFi market. The motivations behind crypto lending mirror those in traditional finance, as traders seek to short tokens or amplify leverage, long-term holders access liquidity without liquidating their assets, businesses secure funding for operations, and lenders generate passive income on dormant assets. Currently, the total crypto lending market is valued at $36.5 billion, which still reflects a 43% decline from its peak of $64.4 billion in late 2021. Nonetheless, the dynamics of this market are rapidly evolving, with decentralized finance (DeFi) platforms now accounting for 63% of crypto borrowing—almost double their share during the previous bull market.
### The State Of Centralized Crypto Lending
In its prime, around late 2021 and early 2022, centralized crypto lending was predominantly controlled by Genesis, Celsius, and BlockFi, who together held 76% of the market. However, the subsequent crash triggered by plummeting token values, poor risk management, and problematic collateral led to a significant credit contraction across the industry. By the first quarter of 2023, the total loan book in CeFi had plummeted to $6.4 billion. Since then, it has rebounded to $11.2 billion, marking a 73% recovery, but still remaining two-thirds below its former peak. A new trio has now taken the lead: Tether, known for its dollar-pegged stablecoin, has emerged as a major lender; Galaxy Digital, led by billionaire Mike Novogratz, claims to operate one of the largest active loan portfolios in the sector; and Ledn, a Toronto-based lender focusing on Bitcoin, completes this new dominant group. Collectively, they command 89% of the remaining centralized crypto lending and 27% of the overall crypto lending market when accounting for crypto-backed stablecoins.
### The Quiet Ascent of DeFi
While institutional players like Galaxy and Ledn worked to stabilize their positions, DeFi protocols subtly increased their share of the market. Platforms such as Aave and Compound operate under code governance, requiring borrowers to provide more collateral than the amount borrowed, effectively mitigating the credit risks that plagued CeFi. At the lowest point of the bear market in the fourth quarter of 2022, DeFi borrowing dipped to a mere $1.8 billion. However, it has since surged more than tenfold, reaching $19.1 billion across 20 platforms on 12 different blockchains. Ethereum remains the leading blockchain for DeFi lending, with $33.9 billion in assets deposited as of March 2025. Lending continues to be the most significant application within decentralized finance. Crypto-backed stablecoins like the $7 billion USDS and the $5 billion Ethena USDe—ranking as the third and fourth largest stablecoins behind Tether and Circle’s USDC—add layers of complexity. In the case of USDS, users lock their cryptocurrency, such as ether, into a smart contract as collateral, which then issues stablecoins. To minimize the risk of default, the collateral’s value must exceed that of the issued tokens. USDe, on the other hand, utilizes a delta-hedging strategy, combining crypto collateral with short positions in derivatives markets to maintain its peg to the dollar. Galaxy notes potential double counting between centralized and decentralized loan portfolios, as institutional lenders frequently leverage DeFi protocols to originate loans for their clients.
### The Outlook
“The current borrowing rate against Bitcoin is fluctuating between 5.5% and 7%, a decrease compared to previous months. This indicates that many investors are remaining cautious as market conditions evolve, yet the lending market still appears robust,” remarks Sid Powell, CEO and co-founder of Maple Finance, an institutional lender managing over $300 million in loans on the blockchain. He suggests that the future of lending may depend on the stabilization of the 10-year yield and whether the Federal Reserve can achieve inflation reduction and improvement in employment statistics. A rate cut could favor crypto asset values. Institutional interest is already showing signs of resurgence. In July, Cantor Fitzgerald, Tether’s principal custodian, revealed plans to launch a $2 billion bitcoin financing venture aimed at providing leverage to bitcoin holders. Although U.S. Commerce Secretary Howard Lutnick, a former chairman and CEO of Cantor, has agreed to divest his stake to comply with government ethics regulations, the company is now under the management of his sons. Additionally, in January, the U.S. Securities and Exchange Commission rescinded Staff Accounting Bulletin (SAB) 121, easing the restrictions on how publicly traded companies manage client-held crypto assets, thus removing a significant barrier for banks and institutions in the crypto custody and lending arena. The advent of U.S.-listed bitcoin ETFs has also created new opportunities. According to Galaxy, the entry of prime brokers offering lending and leverage on these products is already expanding the market. “Cantor’s launch will likely set a notable trend, as Bitcoin is a highly liquid asset that trades continuously worldwide. It offers greater liquidity and transparency compared to traditional fixed-income assets, while providing yields comparable to investment-grade bonds. Many large institutions are holding Bitcoin, and the ability to convert it into a fixed-income-style product that generates yield is very appealing,” Powell adds. “We, among others, are exploring ways to package and tokenize this asset for institutional use. Maple recently introduced a product in collaboration with Core, the creator of a yield-bearing Bitcoin token, enabling institutions to earn yield on their Bitcoin holdings directly. We’ve already seen $50 million in inflows within just two months,” Powell concludes, expressing interest in whether this could serve as a gateway for institutions to engage more with on-chain activities.
