The decentralized finance (DeFi) sector has witnessed a remarkable surge in lending activity during the third quarter of the year, according to a recent report from Galaxy Digital. The value of outstanding loans on DeFi platforms escalated by $14.52 billion, marking an impressive increase of 54.84% to reach a total of $40.99 billion by the end of Q3.
When accounting for both decentralized finance and centralized finance (CeFi), the total outstanding value of crypto-collateralized loans reached a staggering $65.37 billion in Q3, which is an increase of $21.12 billion from the previous quarter. This figure sets a new record, surpassing the prior peak of $53.44 billion recorded in Q4 2021 by a significant margin of $11.93 billion.
Factors Driving DeFi Lending Growth
Galaxy Research attributes the substantial growth in DeFi lending to multiple factors. Notably, the rise of “points farming” and airdrop incentive programs has encouraged users to maintain their loans even during challenging market conditions. Additionally, the increasing adoption of advanced collateral assets, such as Pendle PTs, has enabled users to implement stablecoin strategies with favorable loan-to-value ratios. The appreciation of crypto asset prices has also enhanced borrowing capacities as collateral values rise.
However, the report cautions about the potential risk of double-counting in the cumulative totals of CeFi and DeFi lending. Some CeFi entities utilize DeFi protocols to borrow assets before lending them to off-chain clients, complicating the process of distinguishing between on-chain and off-chain exposures.
DeFi”s Dominance Over CeFi
As the DeFi landscape continues to evolve, its dominance over CeFi has reached an unprecedented high of 62.71% as of the end of Q3 2025, up from 59.83% in the previous quarter. This figure exceeds the previous peak of 61.99% noted in Q4 2024. Meanwhile, the crypto-collateralized segment of the collateral debt position (CDP) stablecoin supply experienced a decline of $658 million, or 7.4%, from the previous quarter. The aforementioned double-counting issue may also affect this metric, as CeFi entities mint CDP stablecoins to finance loans for off-chain borrowers.
Overall, the total value of crypto-collateralized lending rose by $20.46 billion in Q3, setting a new all-time high of $73.59 billion. By the conclusion of the quarter, DeFi lending applications represented 55.7% of the market share, reflecting an increase of 588 basis points from Q2 2025. In contrast, CeFi platforms accounted for 33.12%, a decrease of 36 basis points, while CDP-backed stablecoin supply comprised 11.18%, down 547 basis points.
The combination of DeFi lending apps and CDP stablecoins resulted in a 66.88% share of the on-chain lending market, slightly surpassing the previous all-time high of 66.86% achieved in Q4 2024. Interestingly, DeFi lending has maintained its strength even amid market volatility, with outstanding borrows peaking at $43.82 billion on October 7, before experiencing a modest decline of 11.55% to settle at $38.76 billion by October 31.
In Q4, significant industry movements are anticipated as key players enhance their lending ecosystems. For instance, in October, Ripple teamed up with Immunefi to bolster the security of the upcoming XRPL Lending Protocol and initiated a global “Attackathon” to engage elite Web3 security researchers in stress-testing the system ahead of an imminent validator vote. Furthermore, Tether, a leading stablecoin issuer, made a strategic investment in Ledn, a Bitcoin-backed lending platform, aiming to reinforce self-custody and promote broader institutional adoption.
