The crypto lending market remains far below its 2021 peak, but signs of recovery are emerging, particularly in the decentralized finance (DeFi) sector, according to a new report from Galaxy Research.

By the end of 2024, the total value of the crypto lending market stood at $36.5 billion, significantly lower than its $64.4 billion peak during the 2021 bull market. This decline was largely caused by the crypto winter of 2022-2023, which resulted in the collapse of major lending platforms like Celsius, BlockFi, and Genesis.

Despite the contraction in the centralized finance (CeFi) space, Tether, Galaxy, and Ledn have maintained dominance, collectively accounting for nearly 90% of the $11.2 billion CeFi loan book. This is a sharp drop from the $34.8 billion peak observed in early 2022, a 68% decrease.

While the CeFi market struggles, decentralized lending protocols have been experiencing rapid growth. DeFi platforms, which enable users to borrow crypto by locking up collateral without the need for a central authority, have surged since late 2022. According to Galaxy, DeFi borrowings have skyrocketed by 959%, growing from $1.8 billion to $19.1 billion across 20 platforms and 12 blockchains.

Galaxy Research analyst Zack Pokorny sees a bright future for the crypto lending space. “The market is transitioning into a new phase of growth, driven by stronger risk management, more institutional players, and clearer regulatory frameworks,” he wrote.

Pokorny further emphasized that as the sector matures, crypto lending has the potential to bridge the gap between traditional finance and the emerging digital asset market, encouraging widespread adoption of cryptocurrency-based financial services.