DeFi Lending Is Surging Past DEXs — You Won’t Believe Who’s Winning the Yield Game!

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It appears, my dear readers, that the denizens of the cryptographic steppes have tired, at least for this cycle, of chasing unsustainable yields like mice after moonbeams. In the world of decentralized finance—or DeFi, as the young and foolhardy like to call it—lending continues to sparkle, while the once-proud decentralized exchanges, or DEXs, are left peering wistfully at their dwindling coffers and reminiscing about richer days. 😔

Just now, the DeFi lending protocols preside over the land, their treasure chests brimming with $53.6 billion. That’s 43% of the $124.6 billion secured within all DeFi. Picture the pile: gold coins spilling out of imaginary smart contract vaults, and not a dragon in sight. This sum, by some inexplicable twist of fate, even bests liquid staking, which—like my Aunt Vera’s jam—once promised much, but now only clings desperately to the edges of the table.

Observe Aave, the grand old landlord of lending, lording over $25 billion of that wealth—one can almost hear the sighs of envy from its brethren at Compound and elsewhere. Half the lending market, nestled like a fat cat atop a velvet cushion. 🛋️

Contrast this with the pitiful spectacle of DEXs, whose glory days are as faded as last winter’s coat. Where once, in November 2021, $85.3 billion basked under their control, today only a meager $21.5 billion remains. Sic transit gloria mundi, as they say, or as my neighbor Boris would have put it, ‘there goes the neighborhood.’

To unravel this mystery, Henrik Andersson, founder of Apollo Capital and part-time destroyer of dreams, proclaimed to CryptoMoon that lending is, “the only sustainable way to produce yield in DeFi,” since DEX liquidity pooling brings more heartbreak than profit—thanks to impermanent loss, which is neither impermanent nor loved.

He also mused that Uniswap v3—oh, v3!—with its “capital efficient” design, lets liquidity providers earn more with less, dramatically reducing the TVL for DEXs. In other words, there’s no free lunch, but the menu changed and nobody updated the sign outside. 🍲

The decline, Andersson continued (at this point surely twirling a metaphorical mustache), is peppered by intent-based swaps—crosschain sorcery that siphons liquidity from centralized exchanges, leaving DEXs with about as much action as a forgotten samovar.

Lending protocols like Aave and Compound Finance at least offer some solace: you may lend your digital pennies for interest, or borrow against your stack, all enforced by soulless, unblinking smart contracts. Trust, it seems, is now a bit of code written by someone named Vlad. Users tossing in Ether (ETH) and Tether (USDT) on Aave receive the princely annual yields of 1.86% and 3.17% respectively. Not quite the stuff of legend, but, as they say, better than nothing. A low bar these days.

DEX pools such as Uniswap might tempt with higher returns, but they are about as stable as a Russian railway timetable—fluctuations all but guaranteed, and always when least convenient.

DeFi now dominates CeFi in crypto lending market 

By the end of 2024, DeFi lending had seized about 65% of the crypto lending realm, smugly retaining or growing this lead every quarter since the winter of 2022 (and who can forget that winter?). This, according to an April dispatch from Galaxy Digital—who presumably have nothing better to do than count digital beans.

The curtain first fell when centralized lenders—Genesis, Celsius, BlockFi, Voyager—toppled like so many undercooked blini, their bankruptcies dragging down TVL faster than you can say “rug pull.” An estimated 78% collapse ensued, much like my attempt at sobriety during New Year’s.

Yet, in classic Chekhovian fashion, just when you expect only despair, DeFi lending protocols stage a return—nearly a 960% rise in open borrows between Q4 2022 and Q4 2024. The heart trembles, wallets jingle.

This grand rebound, Galaxy says, vindicates the clever construction and rigorous—some say obsessive—risk management of DeFi lending. Algorithmic, overcollateralized, supply-and-demand: these are the modern heroes, replacing yesterday’s besuited bankers with bright-eyed coders in bathrobes.

Institutions are moving in, regulations loom on the horizon, and the next wave of digital lending awaits. Will it bring prosperity, disaster, or merely another round of ironic Telegram memes? The samovar whistles, the market answers—or doesn’t. 🍵

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2025-05-12 09:46