DeFi Lending’s Ascent: Why TVL Surpasses DEXs
The decentralized finance (DeFi) landscape is shifting. Total Value Locked (TVL) in DeFi lending is experiencing explosive growth, significantly outpacing decentralized exchanges (DEXs). This surge suggests a market preference for more sustainable yield generation strategies.
Currently, DeFi lending protocols command a dominant 43% share of the overall DeFi TVL, boasting a staggering $53.6 billion. This surpasses even liquid staking, highlighting the sector’s remarkable strength. Aave, a prominent multichain lending platform, alone holds approximately $25 billion in locked value, nearly half the entire DeFi lending market.
In contrast, DEXs, once the TVL leaders, have experienced a significant downturn. Their TVL has plummeted from $85.3 billion in November 2021 to a current $21.5 billion. This dramatic shift warrants a closer examination.
Henrik Andersson, founder of Apollo Capital, attributes this trend to the inherent unsustainability of DEX liquidity pooling due to impermanent loss. He posits that DeFi lending offers a more reliable path to yield generation.
Andersson also suggests that Uniswap v3’s capital efficiency, while beneficial for liquidity providers, might have inadvertently contributed to the decrease in DEX TVL. Furthermore, the emergence of intent-based swaps, often drawing liquidity from centralized exchanges, has likely further impacted DEX TVL.
DeFi lending platforms like Aave and Compound offer users the opportunity to lend assets and earn interest or borrow against collateral. Smart contracts ensure secure and transparent transactions. For instance, lending ETH and USDT on Aave currently yields 1.86% and 3.17% APR, respectively. While DEXs might offer higher rewards, they are significantly less predictable and sustainable.
DeFi’s Dominance in Crypto Lending
The DeFi lending market share is compelling. By the end of 2024, DeFi captured approximately 65% of the total crypto lending market, consistently outperforming centralized lenders since Q4 2022, according to a Galaxy Digital report.
The failures of centralized lenders like Genesis, Celsius, BlockFi, and Voyager contributed to a massive 78% contraction in the crypto lending market. However, DeFi protocols spearheaded the recovery, demonstrating remarkable resilience with a near 960% surge in open borrows between Q4 2022 and Q4 2024.
Galaxy Digital anticipates that increased institutional involvement and regulatory clarity will further propel the growth of the DeFi lending sector.