In the third quarter of 2025, decentralized finance (DeFi) lending achieved remarkable growth, with total outstanding loans hitting $40.99 billion. This figure represents a substantial 54.84% increase from the prior quarter, as detailed in a report by Galaxy Digital”s research team. This surge signifies a pivotal shift within the financial ecosystem, highlighting DeFi”s increasing dominance over traditional centralized finance (CeFi) in the lending sector.
The overall landscape of crypto-collateralized loans, which includes both DeFi and CeFi, reached a new high of $65.37 billion by the conclusion of Q3. This record surpasses the previous peak of $53.44 billion, which was recorded in the last quarter of 2021, showcasing the rapid expansion of this financial segment.
A key driver of this growth has been the rise of points farming and airdrop initiatives that reward users for keeping their loans active, even amid market volatility. These incentive programs foster user engagement and help maintain stability within the DeFi space. Additionally, the introduction of new collateral assets, such as Pendle PTs, has enabled users to execute stablecoin strategies with improved loan-to-value ratios, enhancing their borrowing potential.
Despite the overall positive outlook, the report also raises concerns about potential double-counting in the combined figures of CeFi and DeFi lending. Some CeFi institutions are known to borrow via DeFi channels, subsequently lending to clients off-chain, which could distort exposure assessments across these sectors.
By the end of Q3, DeFi lending”s share of the total loan market reached an impressive 62.71%, up from 59.83% in the previous quarter. This trend underscores a growing preference among borrowers for DeFi platforms when seeking crypto-collateralized loans.
On the other hand, the supply of stablecoins derived from crypto-collateralized debt positions (CDPs) saw a slight decline, dropping by $658 million, or 7.4%, quarter-over-quarter. This decrease may also reflect double-counting issues, particularly involving CeFi entities that create CDP stablecoins for off-chain lending.
By the quarter”s end, DeFi applications controlled 55.7% of the lending market, marking a significant rise from the previous quarter. In contrast, CeFi platforms experienced a slight reduction, holding 33.12% of the market, while the supply of CDP-backed stablecoins fell to 11.18%. Overall, combined DeFi applications and CDP stablecoins represented 66.88% of the on-chain lending market, slightly exceeding the previous high set in late 2024.
Despite challenges in the market, DeFi lending has shown resilience, with outstanding loans peaking at $43.82 billion on October 7 before settling at $38.76 billion by month-end. This robust growth can also be attributed to significant industry players enhancing the lending ecosystem. For instance, Ripple has collaborated with Immunefi to improve the security of the XRPL Lending Protocol, launching a global “Attackathon” to engage top Web3 security experts in stress-testing the system before a validator vote.
In November, Tether, a prominent stablecoin issuer, announced an investment in Ledn, a Bitcoin-backed lending platform. This strategic move aims to strengthen financial resilience, promote institutional adoption, and advance self-custody practices within the crypto lending domain.
Historically, the ascent of DeFi mirrors a larger trend in finance, wherein traditional intermediaries are being supplanted by decentralized systems. The allure of DeFi lies in its transparency, reduced costs, and the autonomy it affords users, effectively minimizing the reliance on traditional banks.
However, the rapid growth of DeFi is not without its risks. The lack of regulatory oversight poses significant threats, as the anonymity and decentralization inherent in DeFi attract potential malicious actors. Security vulnerabilities within smart contracts can lead to substantial financial losses, emphasizing the importance of rigorous security audits and ongoing improvements.
As the DeFi sector continues to evolve, scalability, interoperability, and compliance with regulatory standards become increasingly critical. The current momentum in DeFi lending indicates its vital role in shaping the future of finance. As the industry innovates and tackles its challenges, it is poised to redefine borrowing and lending practices in the digital era, potentially serving as a model for modern financial systems.
In conclusion, as decentralized finance expands its market share, stakeholders must remain vigilant, balancing innovation with security and compliance to ensure sustainable growth in the sector. With strategic investments and partnerships, the DeFi ecosystem is solidifying its foundation, paving the way for a more inclusive and decentralized financial future.
