Fueled by DeFi lending protocols, crypto lending activity is making a huge return. They’re already beating decentralized exchanges (DEXs) like Uniswap and PancakeSwap in total value locked (TVL) numbers further proving their aggressive comeback. The distinctively rapid recovery of the DeFi lending market reinforces how important design and prudent risk management practices are to the very simplistic protocols.
DeFi open borrows have increased by nearly 960% from Q4 2022 to Q4 2024. This massive increase is a testament to the demand for lending solutions that are truly decentralized. This development underscores the appeal of the algorithmic, overcollateralized, and supply-and-demand-driven borrowing models used by DeFi lending platforms.
By the end of 2024, DeFi-based crypto lending accounted for about 65% of the overall market. Since Q4 2022, it has either been gaining at least its market share or losing nothing to the centralized lenders quarterly. This change signals a rising level of confidence and dependency upon decentralized platforms for various crypto lending services.
The crypto lending market has shrunk considerably, decreasing nearly 78% from its all-time high in 2022 to the new bear market low. Yet, DeFi lending protocols have shown an impressive degree of resilience in the wake of this recent downturn. Aave continues to lead the pack as an exciting multichain lending protocol. It now has $25B in TVL and commands almost 50% of all DeFi lending.
DeFi lending is quickly growing in popularity. This is a tricky pivot to make, given that the total value locked in crypto lending protocols just dropped from $85.3 billion last November to $21.5 billion.
Henrik Andersson, Head of Quantitative Research on yield generation sustainability Underpinning this whole move to DeFi lending is the realization that the generation of yield can’t continue forever.
"only sustainable way to produce yield" - Henrik Andersson
In comparison, DeFi lending protocols provide a much more black-boxed approach to driving yield. Funding stablecoins and Ether to DEX liquidity pools get significantly higher rewards, but many of those rewards are unsustainable. We believe that the increase in intent-based swaps was a significant factor in lowering DEX TVL. Until now, market makers have relied heavily on centralized exchanges and their liquidity to facilitate these swaps.
