DeFi Lending Skyrockets in Q3, Crushing CeFi: Galaxy Reports

Amid incentives, stronger collateral and rising prices, DeFi lending surged in the third quarter, capturing a record 55.7% market share in the quarter.

DeFi lending reached a new record in the third quarter, according to a new report from Galaxy Digital’s research team, which found that the dollar value of outstanding loans on decentralized finance (DeFi) applications increased by $14.52 billion, or 54.84%, to $40.99 billion at the end of the third quarter.

Combined with centralized financial lenders (CeFi), total outstanding crypto-backed loans rose to $65.37 billion in the third quarter, an increase of $21.12 billion from the previous quarter. This is a new all-time high after surpassing the previous peak of $53.44 billion from the fourth quarter of 2021 by $11.93 billion.

DeFi lending is exploding to record highs

Galaxy Research, in its latest report, attributed the continued expansion of DeFi lending due to several factors. This includes the growth of points farming and airdrop incentive programs, which encourage users to keep loans open even under market pressure. The increasing use of enhanced collateral assets such as Pendle PTs, which allow users to loop stablecoin strategies at favorable loan-to-value ratios, is also another factor, in addition to rising crypto asset prices, that increases lending capacity as the value of collateral rises.

However, the report warned that there is potential for double counting in the combined CeFi and DeFi lending totals as some CeFi entities borrow through DeFi protocols before lending these assets to off-chain customers, making it difficult to separate on-chain and off-chain exposures.

With the increase in DeFi activity, this sector’s credit dominance over CeFi venues rose to a new all-time high of 62.71% at the end of Q3 2025, up from 59.83% in Q2 2025 and higher than the previous peak of 61.99% in Q4 2024.

Meanwhile, the crypto-collateralized portion of collateral debt position (CDP) stablecoin offerings fell by $658 million, or 7.4%, quarter-over-quarter, although the report again noted potential double-counting involving CeFi entities that mint CDP stablecoins to fund loans to off-chain borrowers.

Overall, total crypto-collateralized lending increased by $20.46 billion in the third quarter, reaching a new all-time high of $73.59 billion. By the end of the quarter, DeFi credit applications accounted for 55.7% of the market, up 588 basis points from Q2 2025. During the same period, CeFi platforms held 33.12%, down 36 basis points, while CDP-backed stablecoin offerings accounted for 11.18%, down 547 basis points.

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Combined, DeFi lending apps and CDP stablecoins delivered a 66.88% on-chain market share, slightly ahead of the previous record of 66.86% in Q4 2024. The report also highlighted that DeFi lending remained resilient despite volatile market conditions, as outstanding loans reached a daily record of $43.82 billion on October 7 before falling just 11.55% to $38.76 billion by October 31.

Important movements in the sector

However, in the fourth quarter, major players invested in strengthening the credit ecosystem. For example, in October, Ripple partnered with Immunefi to boost the security of the proposed XRPL Lending Protocol and launched a global “Attackathon” that invited elite Web3 security researchers to stress test the system ahead of an upcoming validator vote.

In November, the ecosystem’s expansion continued when leading stablecoin issuer Tether made a strategic investment in Ledn, a Bitcoin-backed lending platform, in an effort to strengthen self-governance, financial resilience and broader institutional adoption.