Decentralized finance (DeFi) lending is stealing the spotlight in the crypto world, with its total value locked (TVL) soaring to new heights while decentralized exchanges (DEXs) seem to be losing their sheen. As of today, DeFi lending protocols boast a staggering $53.6 billion in TVL, making up 43% of the $124.6 billion locked across all DeFi platforms. This surge puts DeFi lending well ahead of DEXs and even liquid staking, marking a significant shift in the crypto landscape.
The Rise of DeFi Lending
DeFi lending protocols, like Aave and Compound Finance, have become the darlings of the crypto community. Aave alone accounts for $25 billion, nearly half of the DeFi lending market. These platforms allow users to lend their assets and earn interest or borrow against their holdings, all managed by smart contracts that ensure seamless, trustless transactions. It’s a model that’s proving to be more sustainable than the alternatives. As explored in our recent coverage of the Tokenized Apollo Credit Fund, innovative strategies continue to emerge, enhancing the appeal of DeFi lending.
Henrik Andersson, founder of Apollo Capital, shared his insights with Cointelegraph, noting that lending is perhaps the “only sustainable way to produce yield” in DeFi. The allure of stable returns has attracted a growing number of users who are weary of the volatility associated with DEX liquidity pooling, which has been plagued by impermanent loss—a risk that can eat into profits when token prices fluctuate.
DEXs: A Fallen Star?
Meanwhile, DEXs, once the titan of the DeFi space with a TVL of $85.3 billion in November 2021, have seen their value plummet to $21.5 billion. Uniswap v3, a leading DEX, introduced a more “capital efficient” design compared to its predecessor, Uniswap v2. This innovation allows liquidity providers to earn more with less capital, yet it seems to have inadvertently contributed to the decline in DEX TVL.
Andersson also points to the rise of intent-based swaps—cross-chain trading mechanisms—as a factor in the reduced DEX TVL. These swaps often source liquidity from centralized exchanges, further eroding the share held by DEXs. It’s a changing tide that raises questions about the long-term viability of DEXs as the go-to option for crypto trading. For a deeper dive into how restaking could enhance security for institutional traders, see our coverage on restaking in DeFi.
DeFi’s Dominance in Lending
DeFi’s dominance isn’t just a flash in the pan. By the end of 2024, DeFi-based lending accounted for approximately 65% of the total crypto lending market. This shift comes in the wake of several high-profile collapses among centralized lenders like Genesis, Celsius Network, BlockFi, and Voyager, which sent shockwaves through the industry and led to a massive TVL drop.
Galaxy Digital, a crypto investment firm, highlighted a 78% collapse in the size of the crypto lending market from its 2022 peak to the subsequent bear market trough. Yet, it was DeFi lending protocols that spearheaded the recovery, with a near 960% increase in open borrows from Q4 2022 to Q4 2024. It’s a remarkable rebound that underscores the resilience and appeal of DeFi’s algorithmic, overcollateralized, and supply-demand-driven borrowing models.
Looking Ahead
As we move further into 2025, the future of DeFi lending seems bright. Galaxy Digital anticipates that increased institutional participation and clearer regulatory frameworks will fuel the next wave of adoption. However, the question remains whether DEXs can reclaim their former glory or if they’ll continue to cede ground to their lending counterparts.
The crypto market is nothing if not unpredictable, and as new technologies and strategies emerge, the dynamics could shift once more. For now, though, DeFi lending stands as a testament to the power of innovation and sustainable practices in the ever-evolving world of cryptocurrency.
Source
This article is based on: DeFi lending TVL is outpacing DEXs due to more sustainable yield — VC
Further Reading
Deepen your understanding with these related articles:
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- Bitcoin DeFi will have 300M users, beating Ethereum and Solana: Exec
- Franklin Templeton Backs Bitcoin DeFi Push, Citing ‘New Utility’ for Investors
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
