A current Galaxy report highlighted that regardless of Tether main the crypto lending market with two different firms, decentralized purposes posted practically double the quantity in excellent loans on the finish of 2024.
Based on the report, the crypto lending market stood at roughly $30 billion on Dec. 31, excluding collateralized debt place (CDP) stablecoins.
This exclusion offers a clearer view of the crypto lending market. The report famous that some overlap might exist between the overall dimension of centralized finance (CeFi) mortgage books and the availability of CDP stablecoins.
The reason being that particular CeFi lenders use crypto collateral to mint CDP stablecoins, that are then lent to off-chain debtors, creating the potential for double-counting.
Including CDP stablecoins enlarges the market dimension to $36.5 billion. Tether, Galaxy, and Ledn comprised 88.6% of the CeFi lending sector, with a mixed mortgage guide of $9.9 billion. This group represented 27% of the overall crypto lending market, together with CDP stablecoins.
The $36.5 billion market dimension is down 43% from its $64.4 billion peak within the final quarter of 2021. The market contraction is attributed to the collapse of a number of lenders and a broader decline in borrower demand.
CeFi for establishments
CeFi lending consists of three main classes: over-the-counter (OTC) lending, prime brokerage companies, and on-chain non-public credit score.
These choices goal institutional debtors with custom-made phrases and collateral constructions, typically executed off-chain or by way of hybrid mechanisms.
OTC loans stay frequent amongst accredited buyers attributable to their bilateral customization capabilities, together with adjustable loan-to-value ratios and maturity phrases.
Prime brokers provide margin financing tied to a narrower set of digital belongings and exchange-traded merchandise. On the identical time, on-chain non-public credit score permits customers to deploy capital utilizing off-chain credit score agreements by way of on-chain liquidity aggregation.
Though centralized companies provide tailor-made credit score merchandise, their attain has narrowed significantly attributable to heightened counterparty danger and decreased retail belief following high-profile insolvencies between 2022 and 2023.
DeFi lending up 959% since 2022
Open borrows throughout DeFi protocols reached $19.1 billion within the fourth quarter, unfold over 20 lending purposes and 12 blockchain networks.
This represents a 959% improve from the final quarter of 2022, when the DeFi market reached a low of $1.8 billion in open borrows. The report attributes the surge to the resilience of permissionless platforms, cross-chain capital mobility, and the emergence of specialised lending purposes.
Not like CeFi, DeFi lending permits customers to interact instantly with sensible contracts to borrow and lend belongings with out intermediaries.
Protocols resembling Aave, Compound, and newer cross-chain companies provide real-time transparency, versatile charges, and automatic liquidation mechanisms. DeFi’s modular design permits protocols to adapt to consumer demand, asset danger, and evolving liquidity situations.
This development displays a consumer choice for trust-minimized infrastructure and the operational stability DeFi protocols demonstrated throughout risky market situations.
The report concluded that centralized entities resembling Tether are essential in institutional lending. Nevertheless, the accelerating shift towards DeFi platforms displays a broader realignment of capital flows and danger frameworks throughout the crypto financial system.
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