DeFi Lending Hits Record $41B, Dominates Crypto Market

The third quarter of 2025 witnessed unprecedented expansion in crypto-collateralized lending, with total outstanding loans across both decentralized and centralized platforms surging to $65.37 billion, according to Galaxy Digital’s comprehensive research. This represents a massive $21.12 billion increase from the previous quarter and comfortably surpasses the previous all-time high of $53.44 billion from Q4 2021 by $11.93 billion. The DeFi sector alone accounted for $40.99 billion of this total, having grown by $14.52 billion or 54.84% quarter-over-quarter.

When examining the broader crypto lending ecosystem, total crypto-collateralized lending expanded by $20.46 billion in Q3, reaching a new record of $73.59 billion. By quarter’s end, DeFi lending applications commanded 55.7% of this market, representing a significant 588 basis point increase from Q2 2025. Meanwhile, centralized finance venues held 33.12%, down 36 basis points, while collateral debt position stablecoin supply represented 11.18%, down 547 basis points. Combined, DeFi lending apps and CDP stablecoins gave on-chain lending venues a 66.88% market share, slightly exceeding the prior peak of 66.86% set in Q4 2024.

Galaxy Research identified several critical factors propelling DeFi lending’s remarkable expansion. The growth of ‘points farming’ and airdrop incentive programs has emerged as a significant catalyst, encouraging users to maintain open loans even during periods of market stress. These incentive structures create additional yield opportunities beyond traditional borrowing and lending activities, fundamentally changing user behavior within the ecosystem.

Another crucial driver has been the increasing adoption of improved collateral assets such as Pendle PTs, which enable users to execute stablecoin strategies at favorable loan-to-value ratios. These sophisticated financial instruments have expanded borrowing capacity while maintaining risk parameters. Additionally, rising crypto asset prices throughout the quarter increased collateral values, thereby boosting overall borrowing capacity across the DeFi landscape.

The research also highlighted DeFi lending’s demonstrated resilience amid volatile market conditions. Outstanding borrows hit a daily record of $43.82 billion on October 7 before easing by only 11.55% to $38.76 billion by October 31, indicating robust system stability despite market fluctuations.

The Galaxy Digital report included important caveats regarding potential double-counting in the combined CeFi and DeFi lending totals. The research team noted that some centralized finance entities borrow through DeFi protocols before lending those assets to off-chain clients, creating challenges in separating on-chain and off-chain exposures. This complexity underscores the increasingly interconnected nature of decentralized and traditional finance.

Similarly, the crypto-collateralized portion of collateral debt position stablecoin supply fell by $658 million, or 7.4%, quarter-over-quarter, though the report again noted possible double-counting involving CeFi entities that mint CDP stablecoins to fund loans to off-chain borrowers. These methodological considerations highlight the evolving sophistication of crypto lending markets and the need for refined analytical approaches.

Beyond the quarterly metrics, significant industry developments in Q4 pointed toward continued ecosystem maturation. In October, Ripple partnered with security platform Immunefi to enhance the security of the proposed XRPL Lending Protocol. The collaboration included launching a global ‘Attackathon’ that invited elite Web3 security researchers to stress-test the system ahead of an upcoming validator vote, demonstrating the industry’s commitment to robust security protocols.

By November, leading stablecoin issuer Tether made a strategic investment in Ledn, a Bitcoin-backed lending platform, signaling continued institutional confidence in crypto-collateralized lending. This move aimed to strengthen self-custody solutions, enhance financial resilience, and drive broader institutional adoption of crypto lending products. These strategic investments and partnerships reflect the growing maturity of the crypto lending sector and its increasing appeal to established financial players.