The Resilience of DeFi Lending Amidst the CeFi Collapse
The crypto lending landscape has undergone significant transformations, particularly in the wake of the dramatic downturns experienced by centralised finance (CeFi) lenders. In what many are calling DeFi’s triumph over CeFi’s vulnerabilities, decentralised finance (DeFi) borrowing has demonstrated remarkable resilience—achieving a staggering 959% recovery from its lowest ebb during the bear market, despite a general market contraction.
Understanding the Crypto Lending Ecosystem
Crypto lending allows borrowers to leverage their cryptocurrency holdings as collateral to secure loans in either crypto or fiat currencies. Conversely, lenders can offer their crypto assets to earn interest, creating a dynamic market of borrowing and lending. However, the total market size for crypto lending has seen a sharp decline, dropping over 43% from its peak of $64.4 billion in 2021 to $36.5 billion by the end of the fourth quarter of 2024, as per a detailed report by Galaxy Digital.
Zack Pokorny, a research associate at Galaxy Digital, attributes this decline to the “decimation of lenders on the supply side and funds, individuals, and corporate entities on the demand side.” This downturn was precipitated by the collapse of several key CeFi entities such as Genesis, Celsius Network, BlockFi, and Voyager, which filed for bankruptcy following a significant drop in crypto valuations.
The Fall of CeFi and the Rise of DeFi
The downfall of these CeFi giants triggered an estimated 78% shrinkage in the market’s size, with CeFi lending losing 82% of its open borrows. In stark contrast, DeFi lending has not only survived but thrived, showcasing a nearly tenfold increase in open borrows from the market’s nadir in late 2022.
By the close of 2024, DeFi open borrows had surged to $19.1 billion across 20 lending applications and 12 blockchains, marking a 959% increase over two years. This robust recovery is largely due to the inherent advantages of DeFi systems, including their permissionless nature and the resilience of blockchain-based applications which have withstood the turmoil that obliterated their CeFi counterparts.
Pokorny notes, “Unlike the largest CeFi lenders that went bankrupt and ceased operations, the largest lending applications and markets in the DeFi space were not all forced to close and continued to function, contributing to the sector’s rapid recovery and growth.”
Current State of CeFi Lending
Despite the resurgence in certain quarters, the CeFi lending sphere still grapples with the aftermath of its previous collapses. Outstanding CeFi borrows stand at a collective $11.2 billion—starkly 68% lower than the peak combined book size of $34.8 billion achieved in 2022. In contrast to DeFi’s triumph over CeFi’s faltering momentum, the three largest CeFi lenders—Tether, Galaxy, and Ledn—now dominate this reduced market, collectively accounting for 88.6% of the total CeFi lending market and 27% of the overall crypto lending market.
Looking Ahead
The contrasting fortunes of CeFi and DeFi lending underscore a pivotal shift within the broader crypto lending ecosystem. As the industry continues to evolve, the resilience and innovative potential of DeFi platforms are likely to drive future growth and could potentially reshape the landscape of crypto finance.
For those involved in web3 recruitment, understanding these dynamics is crucial. The rise of DeFi platforms not only represents a shift in technology but also highlights the importance of blockchain talent in sustaining and advancing these ecosystems. As the market continues to mature, the demand for skilled professionals capable of navigating and innovating within this complex landscape will undoubtedly increase.
For further insights into blockchain and crypto recruitment trends, visit our detailed analysis on DeFi recruitment.
