The lending market has exploded! CeFi recovers losses of 25 billion, with Tether issuers monopolizing 60%.

The total amount of outstanding loans in the crypto assets lending market in the third quarter has approached $25 billion, according to Galaxy Research data. Since the beginning of 2024, the CeFi lending market has grown by over 200%, reaching its highest level since the peak in the first quarter of 2022. As of September 30, the outstanding loan amount of stablecoin issuer Tether was $14.6 billion, with a market share of 60%.

CeFi Lending Revival: The Transparent Revolution Behind the $25 Billion Three-Year High

(Source: Galaxy)

Galaxy Research Director Alex Thorn stated that the CeFi lending market reached $25 billion in the third quarter, marking the highest level in over three years, with the market conditions at that time being drastically different from now. According to data from Galaxy Research, the cryptocurrency lending market has grown by over 200% since the beginning of 2024. The latest quarterly data brings it to the highest level since the peak in the first quarter of 2022.

However, it has not yet recovered to the peak of 37 billion USD at that time. There are profound reasons behind this gap. The first quarter of 2022 was the peak period for CeFi lending, but it was also the last brilliance before the collapse. In the following months, Three Arrows Capital went bankrupt, Celsius filed for bankruptcy protection, Voyager collapsed, and finally, FTX crashed, leading the entire CeFi lending ecosystem into a crisis of trust.

The main difference between the past and the present is the addition of more centralized financial lending platforms and higher transparency. Thorn stated on Sunday that he is proud of the transparency of this chart and its contributors, adding that this represents a “huge change” compared to previous market cycles. This transparency is reflected in several aspects: regular performance verifications, public financial reports, actively providing data to research institutions, and stricter collateral standards.

During the peak of the last market cycle, the CeFi lending space was dominated by a few platforms. These included Genesis, BlockFi, Celsius, and Voyager, all of which were severely impacted due to their association with the exchange FTX, which collapsed in November 2022. Celsius had filed for bankruptcy as early as July 2022, prior to FTX's collapse, mainly due to its investments in Three Arrows Capital. The common characteristics of these platforms were a lack of transparency, the provision of unsecured loans, and an over-reliance on a single counterparty.

Thorn believes that with many FTX-related platforms exiting the market, this gap has been filled by more transparent participants and healthier practices. Over the past three years, many new platforms have emerged in the Crypto Assets lending space, or rather, survivors have regained market trust through reforms. After the financial crisis in 2022, CeFi lending institutions have also become more conservative. As surviving companies adopt stricter risk controls, comprehensive collateral standards, and higher transparency in seeking listings and institutional capital, unsecured loans have basically disappeared.

Tether's $14.6 billion dominance: The stablecoin giant behind a 60% market share

As of September 30, the outstanding loan amount of stablecoin issuer Tether is 14.6 billion USD, with a market share of 60%. This figure is shocking, as it implies that more than half of the business in the CeFi lending market is concentrated in a single entity. How did Tether achieve such a dominant position in the CeFi lending market?

Tether's advantages stem from its unique position as the world's largest stablecoin issuer. USDT is the stablecoin with the highest circulation in the cryptocurrency market, with a market value exceeding 100 billion USD. Tether holds a substantial reserve of US dollars and short-term US Treasury bonds, which provide ample funding sources for its lending operations. Furthermore, Tether can leverage the synergy between its stablecoin issuance and lending businesses to offer borrowers more flexible terms.

Tether releases performance reports every quarter, and this level of transparency is key to gaining trust in the post-FTX era. The performance reports include details of the balance sheet, reserve composition, and the loan portfolio. Although Tether has faced criticism for its transparency issues in the past, its level of disclosure has significantly improved in recent years. This change is a direct result of the market's increased demand for transparency.

According to the Galaxy report, Nexo and Galaxy ranked second and third, respectively, with loan amounts of $2 billion and $1.8 billion. The market share of these two companies is far lower than Tether, but they occupy important positions in their respective market segments. Galaxy's data is presented in the form of public financial reports, and as a listed company, its disclosure obligations are more stringent. Thorn stated that Nexo proactively provides information to Galaxy Research, and this cooperative attitude is a typical feature of the new era CeFi lending market.

The Three Giants of the CeFi Lending Market

Tether: 14.6 billion USD (60% market share), releasing performance proof every quarter.

Nexo: $2 billion (8% market share), actively providing data to research institutions.

Galaxy: $1.8 billion (7.2% market share), public financial report

Approximately 6.6 billion USD remains distributed across other smaller CeFi lending platforms, including Ledn, the restructured entity of BlockFi, and some regional platforms. Although the market concentration is high, it has improved compared to 2022. At that time, a few platforms like Genesis and Celsius monopolized the market, and any issues would trigger systemic collapse. Now, although Tether occupies a 60% share, the robustness and transparency of its stablecoin business have made it a relatively reliable market leader.

$65.4 billion all-time high: CeFi + DeFi lending panorama

Looking at the combination of CeFi lending and DeFi lending, the scale of the entire Crypto Assets lending market is even more astonishing. According to a report from Galaxy last month, the total amount of outstanding loans in decentralized financial applications, measured in USD, reached a new historical high in the third quarter, growing by 54.8% to $41 billion. The report pointed out that by combining DeFi applications with CeFi lending venues, the total amount of outstanding Crypto Assets collateralized loans reached $65.4 billion by the end of the quarter, setting a new historical high.

The scale of DeFi lending at 41 billion USD indicates that decentralized finance has fully recovered and reached new heights after experiencing the collapse of Terra/Luna and multiple DeFi protocol failures in 2022. This recovery is primarily attributed to the robust operations of leading protocols such as Aave, Compound, and MakerDAO (now known as Sky), as well as innovations from emerging protocols like Morpho and Euler.

DeFi lending has unique advantages compared to CeFi: complete transparency (all transactions are traceable on-chain), permissionless (anyone can participate), and smart contracts automatically execute, reducing counterparty risk. However, DeFi lending also faces risks such as smart contract risks, oracle risks, and governance attack risks. Both models have their pros and cons, collectively forming a complete Crypto Assets lending ecosystem.

The total scale of 65.4 billion USD has reached a historic high, surpassing the approximately 60 billion USD in the first quarter of 2022 (when CeFi was 37 billion + DeFi was 23 billion). This milestone marks that the Crypto Assets lending market has fully recovered from the FTX crisis and entered a new growth phase. More importantly, the current market structure is healthier: CeFi is more transparent, DeFi is more mature, and risk control is stricter.

In terms of market share, DeFi lending (41 billion) has surpassed CeFi lending (25 billion), accounting for about 63% of the total market. This ratio indicates that the decentralized model is gaining market recognition. However, CeFi lending still serves specific needs, particularly large institutional loans, hybrid loans between fiat and Crypto Assets, as well as high-net-worth clients requiring customized services.

Transparency Becomes the New Moat: Performance Proof and Public Reports

Thorn believes that as many platforms related to FTX exit the market, this gap has been filled by more transparent participants and healthier practices. This transparency is not only an ethical requirement but also a business necessity. After the collapse of FTX, investors are extremely wary of opaque CeFi platforms, and only those willing to disclose their financial status, undergo regular audits, and proactively disclose risks can win trust and funds.

Tether releases performance proofs every quarter, while the data from Galaxy and Coinbase is presented in the form of public financial reports. Thorn stated that Nexo proactively provides information to Galaxy Research. This multi-layered transparency mechanism ensures that market participants can assess risks. Performance proofs typically include balance sheets, reserve proofs, loan portfolio analyses, and third-party audit reports. Public financial reports are subject to strict requirements from securities regulators and must comply with accounting standards and disclosure regulations.

After the financial crisis in 2022, CeFi lending institutions have also become more conservative. Unsecured loans have virtually disappeared, and all loans require sufficient or even excess collateral. This conservative strategy, while limiting business scale, has significantly reduced systemic risk. When borrowers are unable to repay, lending institutions can immediately liquidate the collateral to avoid bad debts.

As surviving companies adopt stricter risk controls, comprehensive collateral standards, and greater transparency to seek listings and institutional capital, the CeFi lending market is transitioning from speculative high-risk businesses to regulated financial services. This transformation is crucial for attracting institutional capital. Traditional institutional investors, such as pension funds and sovereign wealth funds, will only consider platforms that meet their risk management and compliance requirements.